4.18 Net interest income and realised net income of financial operations

Recording off-balance sheet securities transactions

Description

Face value of securities lent - automatic securities lending Face value of securities lent - agency securities lending Purchase cost of the non-cash hedge arising from security lending transactions Purchase cost of investment of cash hedge arising from security lending transactions Market value of investment of cash hedge arising from security lending transactions Face value of securities bought under repo transactions Face value of securities sold under reverse repo and blocked to ECB repo transactions 0 1,394,246 1,394,246

HUF millions

Balance

31 Dec 2019 31 Dec 2020 Change

3,998 6,357 2,359 371,471 216,668 -154,803 12,395 18,987 6,592 367,963 205,179 -162,784

367,963 205,179 -162,784 31,489 1,412 -30,077

Net forint and foreign currency interest and interest-related income

HUF millions

P/L line Description 2019 2020 Change

(I.1.+II.2.)—(X.1.+XI.1.) Central government (I.2.+II.3.)—(X.2.+XI.2.) Credit institutions (I.3.+II.1.+II.4.)— (X.3.+XI.3.) Other

Net profit/loss from interest

Forint securities Foreign currency securities Derivative transactions for hedging and other purposes* Other

(I.4.+II.5.)—(X.4.+XI.4.) Net interest-related profit/loss (I.+II.)—(X.+XI.) Net interest and interest-related income

1,059 4,240 3,181

5,001

-7,557 -12,558 73,073 82,333 9,260

79,133 79,016 -117

-3,404 -8,659 -5,255 -24,918 -35,142 -10,224 -1,425 5,424 6,849

61 22

-39

-29,686 -38,355 -8,669 49,447 40,661 -8,786

* For details on derivative transactions for hedging and other purposes, see the related table in this section.

In 2020, the MNB recorded a net interest and interest-related profit of HUF 40.7 billion, representing a decline of HUF 8.8 billion compared to the figure for end-2019.

Net interest income decreased by HUF 0.1 billion versus end-2019, as a combined effect of the following:

The main positive factors in net interest income were:

– an increase in interest income on loans to credit institutions and mortgage bonds in the amount of HUF 12.3 billion, as a result of the new collateralised loans with long-term maturity and of the mortgage bond purchase programme (at the same time, the amortised net purchase price loss, recognised among net interest-related expenses, rose by HUF 0.9 billion in 2020);

– forint interest received from the central government was HUF 8 billion higher compared to 2019, resulting from the larger stock of government bonds (which was, however, reduced by the amortised net purchase price loss of HUF 1.9 billion, recognised among net interest-related expenses);

– an increase of HUF 7.5 billion in interest income on other forint receivables, compared to the previous year, as a result of the corporate bonds purchased under the Bond Funding For Growth Scheme (at the same time, the amortised net purchase price loss, recognised among net interest-related expenses, increased in 2020 by HUF 2.4 billion);

– a decline of HUF 3.8 billion in interest paid on the other deposits denominated in foreign currency, originating in the lower interest paid on the SDR allocation owing mainly to the lower US dollar interest rates.

The main negative factors in net interest income were:

– an increase of HUF 24.9 billion in interest expenses on the forint deposits of credit institutions, stemming from the rise in the amount of deposits and from the shift towards deposits with higher interest rates (preferential deposit facility bearing tiered interest, one-week deposit);

– an increase of HUF 5.5 billion in interest paid on the higher forint deposits of the central government;

– a decrease of HUF 2 billion in interest income on foreign exchange reserves arising from the depreciation in foreign exchange market returns.

Net interest-related income fell by HUF 8.7 billion. This item mainly includes the amortisation of the purchase price difference of securities and the net gain or loss on derivative transactions which are not related to exchange rate changes.

Negative sums for interest income/expenses in the net forint and foreign currency interest and interestrelated income

HUF millions

P/L line Description 2019

Total of which: Negative sums for interest 2020

Total of which: Negative sums for interest

INCOME

II. Interest and interest-related income denominated in foreign currency 307,746 -24,046 299,503 -22,803

II. 1. Interest on foreign currency reserves 79,820 -5,211 77,781 -6,765 II. 3. Interest on receivables from credit institutions 3 0 -40 -40 II. 5. Interest-related income 227,921 -18,835 221,762 -15,998

EXPENSES X. Interest and interest-related expenses denominated in forint 10,108 -544 45,172 -145

X. 2. Interest on deposits by credit institutions

5,083 -783 30,015 -145 X. 4. Interest-related expenses 4,247 239 8,855 0

XI. Interest and interest-related expenses denominated in foreign currency 288,956 -6,642 269,475 -7,722

XI. 1. Interest on central government deposits -1,779 -1,994 -2,425 -2,481 XI. 2. Interest on deposits by credit institutions -83 -91 -177 -178 XI. 3. Interest on other liabilities 7,502 -391 3,713 -784 XI. 4. Interest-related expenses 283,316 -4,166 268,364 -4,279

Note: Table includes only P&L lines affected by negative sums for interest.

In accordance with the interest structure stated in the MNB Decree, negative interest income and expenses are recorded in the original P&L lines related to assets/liabilities (in net terms). For example, interest income on foreign currency deposits of the central government, arising from negative yields, is recorded in line ‘XI. 1 Interest on central government deposits’. This method caused the negative balances in the statements.

Details on income from derivative transactions for hedging and for purposes other than hedging represented in interest-related income

Description

Interest margin on interest rate swaps Net interest result of currency swaps Net interest result of FX swaps, FX futures and forward transactions Net interest result of futures transactions Net interest-related result of swap and option transactions Net interest and interest-related result of other transactions

Net result of derivative transactions

HUF millions

2019 2020 Change

23,284 23,611 -20,198 -17,613

327 2,585

-9,785 -1,963 -4,826 -21

273 -2,131 4,959 1,942 -2,404

6,964

6,404 -560

-1,425 5,424 6,849

The increase of HUF 0.3 billion in interest income on interest rate swaps resulted from the fact that the rise in the interest margin on interest rate swaps concluded with foreign partners exceeded the contraction of those concluded with foreign partners.

Currency swap transactions include derivative transactions concluded with the Government Debt Management Agency, with foreign partners and with domestic credit institutions. The transactions concluded with foreign partners mainly serve to hedge transactions concluded with the Government Debt Management Agency. The transactions concluded with domestic credit institutions include the currency swaps related to Pillar II of the FGS. In 2020, the average amount of transactions concluded with the Government Debt Management Agency and with foreign partners was also lower compared to the previous year. Net interest income on currency swaps reflected a loss of HUF 17.6 billion, which was HUF 2.6 billion lower compared to the loss for 2019.

Hedge FX swaps include short-term transactions concluded with foreign partners, with the Government Debt Management Agency and with domestic credit institutions. FX futures and forward transactions comprise short-term transactions concluded with foreign partners. Net interest expenses on these transactions decreased by HUF 5 billion, which was mainly related to the higher interest income on forint liquidity providing FX swaps.

Net interest on hedge futures transactions increased by HUF 1.9 billion, due to higher net interest income on bond futures transactions.

Net interest-related income on hedge transactions includes the exchange rate gains or losses on swap transactions and the option fee of option transactions. In 2020, this item included the exchange rate gains and losses arising from the termination of currency swaps concluded with the Government Debt Management Agency and with foreign partners.

Net interest and interest-related income on other transactions decreased by HUF 0.6 billion resulting from bond futures transactions other than hedging and from TBA transactions.

Realised gains/losses from financial operations

P/L line Description

Realised gains on covered mortgage bonds Realised gains on coupon-bearing bonds denominated in foreign currency

IV. Realised gains from financial operations

Realised losses on coupon-bearing bonds denominated in foreign currency

XIV. Realised losses from financial operations IV.-XIV. Net financial gains/losses

HUF millions

2019 2020 Change

0 1 1

12,424 14,935 2,511 12,424 14,936 2,512 5,151 9,815 4,664 5,151 9,815 4,664 7,273 5,121 -2,152