BUDAPEST: Hungary's central bank will start buying corporate bonds in July to help transmit its monetary policy to the economy more efficiently and foster a big expansion in the corporate bond market, deputy governor Marton Nagy said on Friday.
He told a stock exchange conference that his aim was grow the corporate bond market by two or three times, to help diversify companies' funding sources away from banks and better prepare for possible future crises.
Hungary's corporate bond market is currently worth about 1.6 percent of GDP, much smaller than central European peers such as the Czech Republic and Poland, whose bond markets are equivalent in size to 6 or 7 percent of GDP, Nagy said.
"The objective is to increase efficiency of the monetary transmission mechanism," Nagy told the conference of stock exchange leaders from around Central and Eastern Europe.
The central bank wants to see more competition with bank funding, which currently covers about 99 percent of corporate funding needs, and it could also better step into the corporate bond market to help companies in the event of a crisis.
"Very large companies can be too big for banks to finance -- then it is good to think about alternatives like corporate bonds," Nagy said.
To that end, later this quarter the bank will launch a ratings process for 110 companies it has identified as potential participants in the Bond Funding for Growth Scheme (BGS) and will start purchasing corporate bonds in July.
The central bank will purchase up to 300 billion forints ($1.05 billion) worth of bonds from domestic non-financial issuers, denominated in forints, under this programme.
It will purchase up to 70 percent of each bond series in the primary and secondary markets combined, and expects investors to soak up the rest.
The maturity of the bonds will be between three and 10 years and each purchase will be between 1 and 20 billion forints in size, Nagy said in a presentation.
In 2020, the central bank will launch a second phase of the bond purchase scheme for small businesses, who will be to tap the bond programme via a securitisation process done by banks, he said.
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