1. An important piece of legislation designed to address and mitigate the potentially grave economic consequences of the coronavirus, Governmental Decree No. 47/2020 (III.18.) entered into force on 19 March 2020 (the “Decree”). Subsequently, Governmental Decree 62/2020 (III.24.) entered into force on 25 March 2020 in order to provide further rules on the application and operation of the Decree (the “Additional Rules Decree”). The Decree, among other measures, provides for the following:
a) Pursuant to the Decree, a payment moratorium has been introduced with respect to already existing credit facility agreements, loan agreements and finance lease agreements (the “Agreements”) that have been provided by lenders for business related purposes and have been utilised up until 18 March 2020. The payment moratorium applies to the (re)payment obligations arising out of the Agreements (such as the (re)payment obligation relating to the principal amount and all types of interests and fees) and, to all types of debtors (irrespective of whether they are consumers or non-consumers but with a few limited exceptions (set out in the Decree)). During the payment moratorium under the Decree debtors are not required to comply with their (re)payment obligations in accordance with the Agreements; however, the payment moratorium does not release and/or waive the relevant payment obligations. The payment moratorium will remain in effect until 31 December 2020, unless its term is extended by the Government of Hungary (the “Period of the Moratorium”).
b) The Decree also sets out that (a) contractual deadlines and the term of contractual undertakings and covenants stipulated in the Agreements (although it is not entirely clear whether the contractual undertakings and covenants cover only payment obligations or non-payment obligations as well) and (b) the term of the security interests (including guarantees) provided in relation to the Agreements shall be extended by the Period of the Moratorium.
c) The Additional Rules Decree clarifies that interests and fees that have already been incurred but not yet been paid during the Period of the Moratorium (the “Incurred Amounts”) cannot be re-qualified as an outstanding principal amount under the Agreements. The Incurred Amounts shall be paid by the debtors following the expiry of the Period of the Moratorium (the “Expiry of the Moratorium”) in equal instalments, in addition to the (re)payment instalments payable after the Expiry of the Moratorium. The Additional Rules Decree also sets out that the remaining term of the Agreements following the Expiry of the Moratorium shall be extended in such a way that the sum of the original (re)payment instalments and the Incurred Amounts payable after the Expiry of the Moratorium do not exceed the amount of the original (re)payment instalments (the “Amount Limitation”). , Although the provisions of the Decree and the Additional Rules Decree are directly applicable in relation to the Agreements, and it has been confirmed in the Additional Rules Decree that the amendment of the Agreements is not required in connection with the payment moratorium, it is likely that the formal amendment of the Agreements will be required in order to re-calculate the amount of the (re)payment instalments and the term and ‘long stop’ date under the Agreements following the Expiry of the Moratorium.
d) Pursuant to the Decree, debtors are not required to deliver any declaration/statement in order to be eligible for the payment moratorium. Provided that the Decree is applicable for a particular debtor and the given Agreement, the payment moratorium automatically takes effect. However, the Decree does not prohibit the contractual performance of the Agreements by the debtors on a voluntary basis and the debtors and the lenders are entitled to agree on the non-application of the payment moratorium in relation to a particular Agreement.
2. A further development in terms of the extraordinary measures introduced in connection with the coronavirus, Governmental Decree No. 57/2020 (III.23.) has entered into force on 24 March 2020, containing certain rules in relation to judicial enforcement procedures (the “Judicial Enforcement Decree”).
Moratorium in relation to certain judicial enforcement measures
Pursuant to the Judicial Enforcement Decree, among other provisions, (i) on-site enforcement procedures, on-site enforcement measures and ordinary auctions (i.e. auctions presuming the personal presence of the relevant parties) cannot be carried out or take place; and (ii) arrangements/steps for the eviction of properties cannot be made/taken and the actual on-site eviction of properties cannot be carried out until the Lifting of the State of Emergency Status. As a further procedural relief, the procedural deadlines that apply to taking, amongst other items, the enforcement measures, steps or actions referred to above will be reinstated on the 15th calendar day following the Lifting of the State of Emergency Status. Furthermore, judicial enforcement administrators are not entitled to make the necessary arrangements for the auction sale of residential properties owned by natural persons as debtors (i.e. publishing a notice on the auction sale of the residential property) until the 15th calendar day following the Lifting of the State of Emergency Status.
3. In order to reduce the need for physical contact and minimise the amount of cash used for payments, the newly adopted Governmental Decree No. 60/2020 (III.23.) (the “Contactless Payment Decree”) regulates certain contactless payment transactions as exempt from the strong customer authentication (the “SCA”) under the applicable PSD2 RTS.
Increasing the limit for contactless payment transactions without applying SCA
a) Pursuant to the Contactless Payment Decree, the payment service providers (the “PSPs”) are required to execute contactless payment transactions initiated up to the amount of HUF 15,000 without applying SCA. It is important to note however, that in the interest of customer security, PSPs are still required to apply SCA for these new under-the-limit transactions in certain cases (i.e. if the cumulative amount of contactless payment transactions exceeds EUR 150 or five occasions without having applied SCA).
b) The Contactless Card Payment Decree is effective from 25 March 2020, but shall apply from 15 April 2020 at the latest, in order to provide time for PSPs to adopt the necessary measures and IT developments.
4. The Central Bank of Hungary (Magyar Nemzeti Bank, the “MNB”) has also introduced certain steps to mitigate the economic effects of the crisis (mostly by amending the terms of its existing monetary tools), which primarily focus on providing further liquidity to banks.
Acceptance of large-company loans as collateral
MNB now accepts loans provided to large companies (in addition to, in particular, securities) as collateral (by applying a single 30% haircut) in relation to its transaction banks for the purposes of strengthening interbank liquidity.
Discontinuation of the initial margin requirement for FX swaps providing forint liquidity
Under the amended terms and conditions applicable to concluding FX swaps that provide forint liquidity, banks are not required to provide a 4% initial margin to the MNB and are free to dispose with the additional liquidity.
New long-term collateralized lending facilities
MNB has decided to introduce a new lending program to banks, which currently does not have a pre-defined framework amount but will be determined by prevailing market trends. Under such new lending programs, the facilities made available to banks will have different maturity periods (ranging between 3 months and 5 years) and fixed interest rates set at each tender.
Exemption from reserve requirements
Applicable from the reserve maintenance period of March 2020, MNB suspended the sanctions on reserve deficiency required to be created by commercial banks.
Introduction of Funding for Growth Scheme Go!
Commencing from 20 April 2020, MNB will launch a new loan scheme called Funding for Growth Scheme Go! (“FGS Go”) in an overall amount of HUF 1,500 billion to support financing of domestic SMEs and strengthen their liquidity. Banks participating in the FGS Go may provide loans or leasing to domestic SMEs with a maximum interest rate of 2.5% and a maturity of up to 20 years.
Amendment to Bond Funding for Growth Scheme
Effective from 8 April 2020, MNB has amended the conditions of its ongoing HUF 450 billion corporate bond purchase programme called Bond Funding for Growth Scheme (“BGS”). Under the new conditions, MNB has raised the maximum amount of exposure to one participant from HUF 20 billion to HUF 50 billion and has increased the maturities of the bond eligible to the BGS from 10 years to 20 years to provide stable and long-term funding for the corporate sector and to facilitate the use of other methods of funding.
5. Pursuant to the Governmental Decree No. 108/2020 (IV.14.), effective from 1 May 2020, banks shall pay a single special tax in order to cover the costs of mitigating the impact of the COVID-19 crisis (the “Special Tax”). In principle, the tax base of the Special Tax is the amount by which the tax base of the regular special tax imposed earlier on banks exceeds HUF 50 billion. The tax rate of the Special Tax is 0.19% and the Special Tax shall be paid in three equal instalments during 2020, until 10 June, 10 September and 10 December, respectively.