Structured Finance and Securitisation 2010

Author: Gárdos István


Practical Law Company Cross-Border Handbooks 2010, page 105-111


3. Which of the reasons for doing a securitisation, as set out in the Model Guide, usually apply in your jurisdiction? In particular, how are the reasons for doing a securitisation in your jurisdiction affected by:
-         Accounting practices in your jurisdiction, such as application of the International Financial Reporting Standards (IFRS)?
-         National or supra-national rules concerning capital adequacy (such as the Basel International Convergence of Capital Measurement and Capital Standards: a Revised Framework (Basel II Accord) or the Capital Requirements Directive)? What authority in your jurisdiction regulates capital adequacy requirements?

Usual reasons for securitisation
The securitisation market is not developed in Hungary (see Question 1). It appears that there has only been one securitisation transaction by a Hungarian originator, with significant foreign elements, as the sponsor was a German bank.

The need for increasing liquidity and an alternative source of funding will probably force Hungarian banks or other originators to securitise their receivables in the future. Balance sheet benefits (see below, Accounting Practices) may also play an important role in the future (see Model Guide, Reasons for doing a securitisation).

Accounting practices
No special accounting rules apply to securitisation. As Hungary is a member state of the EU, Regulation (EC) No. 1606/2002 on the application of international accounting standards (International Accounting Standards Regulation) is directly applicable in Hungary. In accordance with this Regulation, companies listed on a stock exchange are required to prepare their consolidated accounts in compliance with IFRS. For companies not listed on the stock exchange, IFRS is permitted while statutory accounts conforming to national accounting standards are required.

Under national accounting standards, receivables are removed from the balance sheet of the seller on selling them to a buyer (for example, a factor) with no recourse. To achieve this result, the right of recourse must be expressly excluded. If not excluded, it qualifies as a contingent liability and is therefore shown in the seller’s financial statements.

Capital adequacy
Capital adequacy requirements and the methods for its measurement are set out in Act CXII of 1996 on Credit Institutions, Act CXXXVIII of 2007 on Investment firms and lower level legislation (Government Decree 380/2007 and 301/2008 respectively). As
a general rule the capital adequacy ratio is 8%.

Being a member state of the EU, Hungary has implemented Directive 2006/48/EC relating to the taking up and pursuit of the business of credit institutions and Directive 2006/49/EC on the capital adequacy of investment firms and credit institutions (together, the Capital Requirements Directive), and the Basel II Accord provisions. These special rules apply to the measurement and quantification of capital adequacy of originator financial institutions or investment firms.

In a true sale securitisation, the originator can exclude securitised assets from the calculation of risk-weighted exposure amounts and expected loss amounts if at least 75% of the credit risk associated with the securitised assets (exposures) has been transferred to a third party. This is provided the transaction complies with the requirements set out in the specific legislation, in accordance with section 1.1 of Part 2 of Annex IX of the Capital Requirements Directive. The conditions include a legal opinion proving that the securitised assets are put beyond the reach of the originator and its creditors. Provisions regarding capital adequacy in the case of synthetic securitisation also fully comply with the Capital Requirements Directive.

The regulatory authority relating to the capital adequacy of credit institutions and investment firms is the Ministry of Finance, and its compliance is supervised by the HFSA.