Executive Circular on the Application of the Infrastructure Support Factor and the Definition of Compliance Requirements

I. Purpose and Scope of the Executive Circular

The recipients of this executive circular are credit institutions subject to the scope of Act CCXXXVII of 2013 on Credit Institutions and Financial Enterprises, which are also subject to the scope of Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and amending Regulation (EU) No 648/2012 (hereinafter: CRR) (hereinafter: Institution).

The purpose of this executive circular is to formulate the expectations of the Magyar Nemzeti Bank (hereinafter: MNB) regarding the practical application of the Infrastructure Support Factor (hereinafter: ISF) that institutions subject to the CRR may use in the calculation of prudential capital requirements, thereby increasing the predictability of legal application and facilitating the uniform application of relevant legislation.

The ISF allows for a significant (25%) capital requirement reduction for infrastructure financing bank exposures that meet the requirements listed in the Regulation. This reduction can facilitate the expansion of climate-friendly investments related to essential public services that operate independently of the economic cycle, serving as an important pillar in the fight against climate change, and also contributing to the stimulation of environmentally sustainable economic growth. By issuing this circular, the MNB aims to assist in identifying exposures eligible for the capital requirement reduction, which can increase the stability of the corporate and specialized lending portfolios of institutions through their portfolio building and risk management strategies.

Following the amendments to the CRR rules regarding the application of the ISF that entered into force in 2019, it became necessary to review the MNB executive circular issued on December 14, 2020, under reference number 589727/2020, which ceases to be effective on the date of issuance of this executive circular.

II. Definition of the Infrastructure Support Factor

The compliance criteria that determine the applicability of the ISF capital requirement reduction are established in Article 501a(1) of the CRR. Based on this, the ISF can be applied to financing exposures that meet the following conditions:

Conditions regarding the Borrower/Debtor's Activity:

"Article 501a(1) of the CRR

1. https://www.mnb.hu/letoltes/isf-vezetoi-korlevel-1.pdf

a) the exposure belongs to one of the exposure classes mentioned in point (g) of Article 112 or in points (i), (ii) or (iii) of point (c) of paragraph 2 of Article 147, excluding non-performing exposures; b) the exposure is an exposure to an entity established specifically for the operation or financing of physical structures, facilities, systems and networks that provide or support essential public services; c) the source of repayment of the obligation is represented at least two-thirds by the income generated by the financed assets – rather than the capacities of the broader commercial enterprise independent of this – and/or by one or more support or financing mentioned in points (i) and (ii) of point (b) of paragraph 2; (…) o) for exposures originated after January 1, 2025, the obligor has assessed whether the financed assets make a substantial contribution to one or more environmental objectives defined in Article 9 of Regulation (EU) 2020/852, and do not significantly harm the other objectives defined in that Article, or the financed assets do not significantly harm any of the environmental objectives defined in that Article."

The CRR does not clearly define what constitutes an essential public service; in this regard, the provisions of the currently applicable legislation are guiding.

According to the modified wording of the CRR applicable from January 1, 2025, under point (o) of Article 501a(1), the assessment of compliance with environmental aspects is only required for exposures originated after January 1, 2025. According to the MNB's interpretation, for exposures originated on or before January 1, 2025, only the assessment of compliance with the conditions listed in points (a) to (n) of Article 501a(1) and in paragraph 2 of the CRR is required.

A detailed supervisory position on this matter can be found in the MNB's supervisory statement dated September 8, 2025, under reference number 331629/2025, regarding the interpretation of provisions on infrastructure financing exposures under the CRR (Supervisory Statement).

The MNB expects that for exposures to which the ISF capital requirement reduction is applied, in connection with point (o) of Article 501a(1) of the CRR, they must comply with the provisions of the EU Taxonomy Regulation referenced in the CRR, as well as the conditions set out in delegated acts based on the current mandate (Delegated Acts). In the course of application, to establish uniform practice, the MNB draws attention to the Commission's Communication C/2023/267, as well as to the contents of the document titled "Report on the Application of the Infrastructure Support Factor" issued by the European Banking Authority (EBA) on November 3, 2022, EBA/REP/2022/29.

The MNB draws attention to the fact that a double compliance assessment is required when applying point (o) of Article 501a(1) of the CRR, which means on the one hand that the financed activity must substantially contribute to at least one environmental objective (1), and on the other hand that the financed activity must not harm the other objectives, nor significantly harm any of the objectives (compliance with DNSH conditions) (2).

The MNB expects that the institution performs the assessment of the fulfillment of DNSH conditions and, in accordance with the EBA's Recommendation on the management of Environmental, Social and Governance (ESG) risks, EBA/GL/2025/01, examines it as part of its internal risk management procedure and documents it appropriately. The MNB considers it good practice if DNSH compliance is certified by an external certifier or independent environmental expert, in accordance with the Supervisory Statement.

In this regard, the MNB considers it good practice if institutions design their processes such that they apply the principle of proportionality during data and evidence collection. Based on this, if the institution acts in good faith to achieve compliance but not all data can be fully obtained, it may apply a risk-based and proportional approach, i.e., for smaller and lower-impact investments where limited impact and shorter maturity are expected, it relies on proportionally less documentation in the assessment of DNSH condition fulfillment than for large and complex project finance transactions concentrating high environmental impact and long maturity.

Conditions regarding the Financed Cash Flow:

"Article 501a(1) of the CRR
d) the obligor is able to meet its financial obligations even in a severe stress situation relevant from the perspective of project risk e) the cash flow generated by the obligor is predictable and covers all future loan repayments during the loan maturity"

The CRR does not clearly define what constitutes a severe stress situation; its identification must be performed in the credit approval and risk management process according to the project activity. In the joint interpretation of the above conditions, the MNB expects the institution to perform a detailed examination of the project cash flows (based on a cash flow model), to perform stress scenario analysis regarding risks that are significant and realistic from the perspective of the project activity, and to determine the financing amount such that the cash flows can cover the due financial obligations even in the tested stress scenarios.

Regarding the condition laid down in point (e) of Article 501a(1) of the CRR, paragraph 2 of Article 501a of the CRR defines predictable cash flows with the following criteria:

"a) one of the following criteria is met:
i. revenues derive from availability payments
ii. revenues are subject to regulation on rate of return
iii. revenues are subject to a contract containing a take-or-pay obligation
iv. the level of issuance or the usage and price independently meet one of the following criteria:

• regulated
• contractually fixed
• sufficiently predictable due to low demand risk
  b) if the obligor's revenues do not derive from payments by a large number of users, the party that undertakes to purchase the goods or services provided by the obligor is one of the following:
  i. central bank, central government, regional government or local authority, provided that it receives a 0% risk weight in accordance with Articles 114 and 115, or a credit rating of at least 3 issued by an external credit assessment institution
  ii. public sector entity, provided that it receives a risk weight of 20% or lower in accordance with Article 116, or a credit rating of at least 3 issued by an external credit assessment institution
  iii. a multilateral development bank referred to in Article 117(2)
  iv. an international organization referred to in Article 118
  v. a company with a credit rating of at least 3 issued by an external credit assessment institution
  vi. an organization that can be replaced without significant changes in the level and timing of revenues."

In the joint interpretation of the above conditions, the MNB considers the following activities most appropriate for the application of the ISF:

• the price of sales to a large number of customers/consumers is fixed by law or contract, and the volume is fixed by law or contract or is easily predictable due to low demand risk, or
• the conditions for sales to a central state/municipal/central bank/development bank or a customer owned by them in majority are fixed by law, or
• the conditions for sales to a central state/municipal/central bank/development bank or a customer owned by them in majority are fixed by a contract (e.g., concession agreement, balance sheet membership agreement) that fixes the contractual volume and pricing, its validity covers the financing maturity, and the customer may only terminate it upon compensation paid to the borrower/project or financing institution, or
• the conditions for sales to a corporate customer are fixed by a contract (e.g., concession agreement, balance sheet membership agreement) that fixes the contractual volume and pricing, its validity covers the financing maturity, and the customer may only terminate it upon compensation paid to the borrower/project or financing institution, or
• the customer is easily replaceable: in case of termination of the customer contract, the customer can be quickly and easily replaced under similar contractual terms regarding price and volume: e.g., trader contracts on well-functioning, liquid markets, even with stock exchange trading.

In the above cases, if it is not a case of a large number of easily replaceable customers, it is necessary that the customer has at least a level 3 external credit rating, or in the absence of such rating, meets one of the following conditions:

1. in the case of a central bank, central government, regional government or local authority, the institution may apply a 0% risk weight in accordance with Articles 114 and 115 of the CRR,
2. in the case of a public sector entity, the institution may apply a risk weight of 20% or lower in accordance with Article 116 of the CRR,
3. the customer is a multilateral development bank referred to in Article 117(2) of the CRR,
4. the customer is an international organization referred to in Article 118 of the CRR.

Regarding Hungarian renewable energy producers, the MNB considers the following interpretation to be prudent:

• The customers of producers subject to mandatory grid connection under Section 11 of Chapter II of Act LXXXVI of 2007 on Electricity (hereinafter: VET) are large-scale users under point 17 of Section 3 of Chapter I of the VET, electricity trading license holders selling to them under Section 46 of Chapter VII of the VET, and balance sheet responsible parties under Section 13 of Chapter II of the VET, among whom financial settlement is performed by the transmission system operator.
• The customers of producers not subject to mandatory grid connection may be electricity trading license holders or users specified in the concluded electricity purchase agreements, who can be considered easily replaceable due to the operation of the organized electricity market under Chapter VIII of the VET.
• In the case of renewable energy production units built for self-consumption, customer risk is not interpretable; in this regard, the MNB can accept the application of the ISF for exposures financing these assets.

The table (mapping) of the ECAI credit rating categories defined in Article 501a(2) of the CRR is available on the EBA website. A level 3 credit rating currently corresponds to the following categories: Fitch, S&P, Scope: BBB, Moody’s: Baa.

Conditions regarding the Financing Structure:

"Article 501a(1) of the CRR
f) the refinancing risk of the obligor is low or appropriately mitigated, taking into account any support or financing provided by one or more organizations listed in points (i) and (ii) of point (b) of paragraph 2;
g) contractual agreements provide a high degree of protection for lenders, including the following:
i. if the obligor's revenues do not derive from payments by a large number of users, the contractual agreements must contain provisions ensuring effective protection of lenders against losses that may arise from project termination by the party undertaking to purchase the goods or services provided by the obligor
ii. the obligor has sufficient reserve funds fully financed by cash or other financial agreements with high-quality guarantors to cover contingent liabilities and working capital requirements throughout the life of the assets mentioned in point (b) of this paragraph;
iii. lenders exercise significant control over both the assets and the income generated by the obligor;
iv. lenders benefit from security interests in assets and contracts of critical significance from the perspective of the infrastructure enterprise to the extent permitted by applicable law, or have alternative mechanisms to secure their position;
v. there is an obligation to provide lenders with a controlling equity stake so that they can exercise control over the entity in case of default;
vi. the use of net operating cash flow from the project for purposes other than debt repayment is limited after mandatory payments;
vii. the obligor's ability to perform activities potentially detrimental to lenders is restricted by contract, including the restriction that it cannot take on new debt without the consent of existing lenders;
h) the obligation is senior to all other claims, except for claims prescribed by law and claims of partners involved in derivative transactions."

In light of the above conditions, it is expected that the financing structure ensures a senior lender position and full amortization (bullet/balloon structures are not permitted), including cash sweep structures that ensure full amortization within the maturity based on the financial plan accepted in the institutional approval process. The MNB considers it prudent practice if the financing contract provides adequate construction reserves in the form of segregated cash or available credit lines during the construction period, and authorizes the financier to segregate adequate debt service and maintenance reserves during the operational period (filling DSRA, MRA accounts from generated cash flows).

The MNB considers the conditions laid down in point (g) of Article 501a(1) of the CRR to be fulfilled if, to reduce the risks of the transaction, the institution has significant control over the asset and the income it generates. The asset is not merely collateral in the transaction, but the cash flow derived from it is also the primary source of loan repayment. This condition can be fulfilled in several ways: for example, the institution may require the borrower to channel revenues into an account managed by the institution, control payments from this account, use a certain amount of incoming revenue for debt service (e.g., via a cash-sweep mechanism), require a continuous balance of a specified amount to be available in the account, and link the modification of contracts determining cash flow and operation (sales, operation, maintenance, insurance and other contracts) to credit institution approval. Asset-side control can be, for example, if the institution holds a call option or lien on the given asset, as well as on the shares of the borrower owning the asset. According to the MNB's interpretation, the existence of a lien registration on the asset is not a mandatory condition for fulfilling this point, provided that the contractual arrangement between the institution and the borrower ensures control over the asset or the cash flow it generates for the institution. If the sale of the asset's production is to a large number of easily replaceable customers or for self-consumption, customer risk is relevant. In this case, it is expected that the loan contract provides for the reduction of lender losses in case of customer contract breach and termination, at minimum immediate termination and full maturity, but preferably with the prescription of an appropriately long customer notice period and/or compensation.

Special Conditions regarding the Construction Period:

"Article 501a(1) of the CRR
i) if the obligor is in the construction phase, the capital investor – or if there is more than one capital investor, the group of capital investors jointly – must meet the following criteria:
i. the capital investor has previously successfully supervised infrastructure projects, possesses financial stability and appropriate expertise
ii. the risk of default by capital investors is low, or the risk that the obligor would suffer significant losses in case of their default is negligible
iii. appropriate mechanisms are available to align the interests of capital investors and lenders
j) the obligor has adequate security to ensure the completion of the project in accordance with the approved specifications, budget and completion deadline, including strong performance guarantees or the involvement of an experienced contractor and appropriate contractual provisions regarding penalties
k) if operational risk is significant, it is appropriately managed
l) the obligor uses tested technology and design
m) all necessary permits and authorizations have been obtained
n) the obligor only uses derivative instruments for risk mitigation purposes."

The MNB expects the prudent management of technical, financial and legal risks arising during the construction period in the credit approval and risk management processes, as well as within the framework of financing documentation. This can be primarily served by the verification of regulatory permits regarding the project, technical plans and descriptions, as well as construction and subcontractor contracts and related guarantee and warranty provisions. Given that infrastructure projects are involved in specific sectors, typically regulated and requiring special expertise, it is advisable to involve external consultants with appropriate, relevant professional experience and liability insurance during technical and legal verification, including to verify the availability of appropriate permits and project documents. The ISF capital requirement reduction cannot be applied to the financing of experimental or developing technologies for which there is no technically representative number of Hungarian or international examples for construction and multi-year operation, and for which no external technical consultant with relevant knowledge and experience is available. In the case of technology not widespread in Hungary, a technically representative number of examples regarding the technology must be certified in a technical expert report.

Similarly, the proper assessment, verification and management of any other significant risks affecting the project's operation is expected in the credit approval process and throughout the entire maturity of the financing. The MNB considers it prudent practice to verify the project's operational service provider, subcontractor, supplier, maintenance and insurance contracts, and to examine the project's periodic and regular technical and financial reports during the credit approval period and, if necessary, during the operational period with the involvement of external experts.

III. Other Provisions

In accordance with the CRR, institutions must regularly report to the MNB data on the amounts of their exposures affected by the ISF and meeting the criteria listed in Article 501a(1) of the CRR, and their capital requirement implications. The report is submitted as part of the quarterly COREP data reporting. In addition, based on MNB Regulation 35/2018. (XI. 13.) on Credit Institutions (HITREG), monthly regular data...

7/7 services, it is expected that credit exposures affected by the ISF be labeled at the transaction level. The MNB regularly checks the consistency between the COREP and HITREG data submissions prepared in accordance with the applicable MNB regulations applicable for data reporting purposes.

I request that the institution proceed in the future by fully taking into account the above-described aspects regarding the application of the ISF and the classification of affected exposures. The MNB will, taking the principle of proportionality into account, pay special attention to the fulfillment of the provisions contained in this management circular during both ongoing supervision and on-site inspections after January 1, 2026, in order to ensure that there are no unjustified discrepancies in the application of the ISF among individual institutions due to differences in methodologies. In this context, the MNB expects that monitoring materials prepared during the annual review of already disbursed loans also document that the expectations of this circular were taken into account.

*
The management circular is a supervisory regulatory instrument that does not have binding force on supervised institutions. The content of the management circular issued by the MNB expresses the requirements imposed by laws, principles and methods recommended for application based on the MNB's law enforcement practice, as well as market standards and practices. The MNB sends this management circular directly to the management of the institutions and simultaneously publishes it on its website.

Thank you for your kind cooperation!
Budapest, January 28, 2026
Dr. Sipos-Tompa Levente s. k.
Vice President of the Hungarian National Bank responsible for the supervision of financial organizations and consumer protection ELECTRONICALLY SIGNED DOCUMENT