Recommendation of the Magyar National Bank No. 6/2026 (IV.23.)

on the Definition of Specialized Lending Exposure

I. Purpose and Scope of the Recommendation

The purpose of this recommendation is to formulate the expectations of the Magyar National Bank (hereinafter: MNB) regarding the practical application of the general definition of specialized lending exposure to be applied by credit institutions (hereinafter: institutions), thereby increasing the predictability of legal application and facilitating the uniform application of relevant legislation.

The recommendation captures the concept of specialized lending exposure from business and economic perspectives, which corresponds to the concept of specialized lending exposure defined in Article 147(8) 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) under the Internal Ratings-Based (hereinafter: IRB) methodology. The Standardized Approach under the CRR separately defines specialized lending exposure related to non-real estate financing (Article 122a of the CRR), income-producing real estate financing transactions [hereinafter: IPRE exposure; Article 4(1)(75b) of the CRR], as well as a specific form thereof, exposure to land acquisition, development, and construction under Article 4(1)(78a) of the CRR (hereinafter: ADC exposure). In the interpretation of the MNB, these exposure types under the Standardized Approach together correspond to the concept of specialized lending exposure under the IRB methodology.

This recommendation provides assistance in banking processes (e.g., internal risk reports, monitoring, segmentation, Pillar 1 and Pillar 2 capital calculations), as well as in any case where the institution provides information to the MNB regarding specialized lending exposure within the framework of regular or extraordinary (e.g., continuous supervision, or on-site inspections) data reporting, unless legislation provides otherwise.

It is of fundamental importance for institutions to properly identify specialized lending exposures, as experience from previous years has clearly indicated that high concentration and strong sensitivity to economic cycles in specialized lending exposures lead to significant losses. Numerous examples demonstrate that despite high initial collateralization, financiers suffered significant losses; therefore, it is justified to assess the risks of this segment through appropriate segmentation and conservative capital requirement calculations. With this recommendation, the MNB aims to increase the risk awareness of institutions and stimulate the development of their risk management.

In developing this recommendation, the provisions of the CRR were taken into account. The recommendation transposes the guidelines published by the European Banking Authority on 27 June 2025 regarding ADC exposures to residential property under Article 126a of Regulation (EU) No 575/2013 (EBA/GL/2025/03)¹. In formulating this recommendation, the MNB considered the materials of the Basel Committee² and the related Q&As³.

The addressees of this recommendation are credit institutions with their registered office in Hungary.

This recommendation does not fully refer to legislative provisions when formulating principles and expectations; however, the addressees of this recommendation remain obligated to comply with the relevant legislative requirements.

This recommendation does not provide guidance on data protection or privacy matters; it contains no expectations regarding the processing of personal data, and the requirements contained herein cannot be interpreted in any way as authorization for the processing of personal data. Any data processing in connection with the fulfillment of supervisory expectations stipulated in this recommendation must be carried out in compliance with the currently applicable data protection legislation.

II. Definition of Specialized Lending Exposure

1. An exposure shall be identified as specialized lending if the following three conjunctive conditions are met:
   a) The exposure exists against an entity created specifically for financing or operating physical assets, or an economically similar exposure; b) The contractual agreements result in the lender having significant control over the assets and the income generated by them; c) The primary source of repayment of the obligation is the income generated by the financed assets, not the performance of the broader commercial enterprise independently of this.

2. Specialized lending exposure is characterized, among other things, by the following:
   a) The transaction involves a sponsor with appropriate industry experience; b) The financing is directed at the creation or operation of a specific, describable asset (which may be real estate or another object); c) Independent operation of the asset can be ensured; d) There is clear temporal limitation in the financing; the financier does not finance economic activity generally (without time limits) but a specific, given project; e) The financing is typically "non-recourse," meaning the financier has limited recourse against the project sponsor in case of poor performance of the underlying transaction; f) The original credit decision is typically based on estimated cash-flow plans, not actual financial data.

3. The MNB considers the condition defined in point 1(a) to be fundamentally met if the borrower is a special purpose vehicle (hereinafter: SPV), created for the acquisition, construction, operation, or resale of a given project, real estate, or other goods/assets (hereinafter together: asset); the financed asset appears predominantly on the asset side of the borrower's balance sheet, and on the liability side, the credit provided by the institution plays a significant role; the borrower's operations are not diversified, and the decisive part of its revenues (at least 50%) consists of cash-flow generated by the asset (revenues from the sale, operation, or leasing of the asset).

4. The condition under point 1(a) provides the opportunity not to treat exposure exclusively against an SPV as specialized lending exposure, but also economically similar exposure. The MNB considers it sound practice if the institution considers exposure to be economically similar if the contractual conditions ensure appropriate segregation of assets and income generated by them within a given entity ("ring-fenced entity"), which provides the framework for the financier to exercise necessary control. Typical examples are as follows.
   a) In business practice, it occurs that a company or sole trader starts a new activity without creating a separate SPV, but integrates it into its existing corporate form. Although the client is not formally an SPV, the exposure is still considered SL if it is met that the institution provided at least 80% of all commitments (including off-balance sheet items) for the financing of the given asset, such that the cash-flow generated by the financed asset reaches or exceeds 50% of the debt service of the financing, and the contractual framework ensures the necessary control for the financier over the financed asset and the cash-flow generated by it. b) If the borrower operates multiple similar assets (real estate), leases them, and revenues are not sufficiently diversified because an economic downturn affects the income-generating capacity of similar assets simultaneously, the transaction can be classified under the concept of "economically similar exposure." In this case, when classifying into SL, it must also be examined whether the conditions under points 1(b) and 1(c) are met simultaneously. If a borrower is economically similar to an SPV and has insufficiently diversified revenues, the institution does not need to classify the borrower into SL if the source of loan repayment is not materially ensured by the cash-flow generated by the given asset. A typical example is a company active in the real estate sector that operates and builds multiple real estate properties and already possesses a volume of real estate financed by its own resources, and these real estate properties are already capable of generating the debt service for the still-financed assets. For the purposes of applying this recommendation, an entity economically similar to an SPV mentioned in points (a) and (b) qualifies as an SPV.

5. The MNB expects that the institution interprets the condition defined in point 1(a) at the customer level, thus classifying all transactions of the customer as specialized lending exposure and performing segmentation at the customer level.

6. The MNB considers the provisions of point 1(b) to be met if, to reduce the risks of the transaction, the institution has significant control over the asset and the income generated by it. 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 met 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), and require a specified balance to be continuously available in the account. Asset-side control may be, for example, if the institution holds a call option or mortgage right on the given asset. Furthermore, the institution may impose requirements on the borrower regarding tenant distribution or occupancy of the real estate, or the content of lease agreements, and may link real estate modification, renovation, or other activities related to the real estate to prior financier approval. In the interpretation of the MNB, the existence of a mortgage registration on the asset is not a mandatory condition for compliance with the provisions of this point, provided that the contractual structure between the institution and the borrower ensures control over the asset or the cash-flow generated by it for the institution.

7. Point 1(c) points to the specific characteristic of specialized lending exposure: in specialized lending exposure transactions, the primary source of debt service is the cash-flow generated by the asset, as the borrower does not have significant, independent, diversified revenues. In traditional cash-flow-based corporate financing, the cash-flow generated by the borrower's operations and activities is the primary source of loan repayment, and any assets present in the transaction appear only as underlying collateral. Therefore, the quality of the loan depends fundamentally on the quality of the borrower, in contrast to specialized lending exposure, where the performance of the asset (loan repayment depends strongly on the cash-flow generating asset) is primary. The MNB expects that the institution stipulates in its internal regulations what degree (expressed, e.g., in %) above which, if the repayment of the obligation derives from the income generated by the financed asset, it complies with the provisions of point 1(c).

8. A necessary condition for the fulfillment of the three conjunctive conditions defined in point 1 is that the project company and the lessee of the asset it operates are not members of the same corporate group. In the case of a corporate group, it is not or hardly possible to ensure the opportunity for the financier to exercise necessary control, as member companies can redirect the generated cash-flow between activities, thereby reducing financier control. A typical example in the sector is the practice of financing hotel projects as specialized lending exposure when the hotel operator performs activities as a tenant, as an independent party, separated from the company owning the real estate. A similar example is described in point 11(ba).

9. In the opinion of the MNB, all revenue derived from the financed asset constitutes part of the cash-flow from the asset, which can be directly or indirectly linked to the asset, influenced by the quality, location, or condition of the given asset. According to this approach, for example, revenues from a hotel's restaurant, wellness section, or a sports facility's catering unit are also part of the cash-flow from the asset, because if the number of guests declines due to the deterioration of the financed hotel or sports facility, the aforementioned revenues will also decrease.

III. Risk Transfer by a Third Party with Diversified Income

10. Proper identification of specialized lending exposure and differentiation from other corporate exposures is critical primarily when a third party with independent, diversified income is involved in the transaction. Income diversification can be realized through different activities [point 11(ba)] or geographically separated units [point 11(bb)]. The third party can be, for example, a company within or outside the borrower's corporate group, an institution, or a player in the public sector. In this case, during segmentation, the institution must assess, according to the MNB's expectations, in what form and to what extent the third party assumes the risks of the transaction.

11. In the opinion of the MNB, the following options can be distinguished when assessing the segmentation classification described in point 10.
    a) When the underlying transaction is identified as SL and the third party's risk-reducing role mitigates the risks of specialized lending exposure: risk assumption realized solely in the form of a guarantee, surety, or sponsor support related to the transaction does not change the nature of the transaction, and the contractual framework ensures the fulfillment of the three conjunctive conditions defined in point 1. In this case, in the opinion of the MNB, the transaction should be considered specialized lending exposure. According to the MNB's expectations, in such cases, the third party's risk-reducing role manifests in mitigating the risk of specialized lending exposure: the institution reduces the risk weight of the transaction through the collateral taken into account or through the factors stipulated in Article 153(5) of the CRR. b) When the underlying transaction is not identified as specialized lending exposure due to risk assumption by the third party: this type of risk transfer applies only if realized within a corporate group, exempting classification into specialized lending exposure. The method of risk transfer can be a guarantee, surety, or other contractual relationship between the institution and the corporate group, based on which the institution can legally enforce the standing of the corporate group, and which meets the acceptance criteria stipulated in the CRR (other contractual structures involving all parties participating in financing and risk-taking may contain, for example, a sponsor agreement.) In such cases, the corporate group formally creates an SPV, for example, to separate its activities, but the source of loan repayment is no longer the income generated by the financed asset, but the broader commercial activities of the group independent of this [condition under point 1(c)]. ba) If an independent party with its own income creates an SPV within a corporate group to separate an activity, and the financed asset is predominantly used for the operations of the corporate group, and in case of default by the SPV (borrower), the institution can legally demand full standing from the corporate group, then, in the opinion of the MNB, full risk transfer is realized, and the client may be excluded from the specialized lending exposure segment and classified by the institution into the corporate segment. bb) A subtype of the third party's diversified income may be when the corporate group's activities do not differ from the borrower's activities but are conducted in a geographically diversified manner. For example, the income of a corporate group can be considered diversified in the case of an international hotel chain. If a Hungarian institution finances a chain member active in the local market, and is legally able to transfer the risks of the transaction to the corporate group, i.e., the institution is entitled to demand full standing, the transaction can be classified into the corporate exposure category. However, if the
    standing of the corporate group cannot be expected to be enforceable, and only the avoidance of reputational risks may be considered by the group as a risk-reducing factor (e.g., if the international hotel chain operates on a franchise basis), the transaction cannot be reclassified from the specialized lending exposure segment according to the MNB's expectations. c) When the underlying transaction is identified as specialized lending exposure, and the third party assumes long-term obligations for the use of the financed asset. ca) If, in the transaction, a third party assumes, under a long-term agreement (reaching the maturity of the transaction), the obligation to use the financed asset (e.g., lease the affected real estate), and the exposure is repaid from the rent paid by the third party, in the opinion of the MNB, this alone is not sufficient to transfer the entire transaction risk, nor for resegmentation from the specialized lending exposure segment. Although the lessee has diversified income, it cannot be expected with full certainty that the entire specialized lending exposure will be repaid based on the long-term contract. If the further conditions under point 11(b) are met regarding the third party and its commitment, the underlying transaction does not need to be identified as specialized lending exposure based on the provisions described there. cb) A sub-case of the long-term agreement is when the client concludes an agreement with a state authority regarding the use of the asset (e.g., prison, dormitory). Since in this case, the condition is not met that the client performs its activities as a member of an economic group operating with the participation of the state as a third party, the MNB expects that in the case of a PPP structure, the institution considers it specialized lending exposure in every instance. The risk-reducing effect of state participation can be taken into account in the collateral taken into account or in the application of factors stipulated in Article 153(5) of the CRR.

IV. Categorization of Specialized Lending Exposure

12. Within specialized lending exposure, sub-segments must be defined based on the nature of the exposure and the subject of financing. The CRR distinguishes the following sub-segments.
    a) Project Finance (PF – project finance)
    Typically, the financing of the construction, renovation, or purchase of large, complex, and costly individual equipment, facilities (projects) (such a project can be considered, for example, the creation or development of a power plant, chemical plant, mine, transportation, environmental, or telecommunications infrastructure), in which case the cash-flow from operation ensures repayment. b) Income-Producing Real Estate Financing (IPRE – income producing real estate) Financing the purchase, construction, or renovation of residential or commercial real estate (e.g., office, residential park, hotel, shopping center, warehouse, industrial park, apartment building, land for construction), where loan repayment primarily depends on income derived from the utilization, leasing, or resale of the real estate. In the standard methodology for credit risk capital requirements, IPRE exposure – and the related ADC exposure – appears separately from other forms; the IRB handles these forms uniformly in determining the risk-weighted exposure value. c) Object Finance (OF – object finance) Financing the purchase or renovation of costly physical equipment, assets (e.g., ships, aircraft, train sets, fleets). d) Commodities Finance (CF – commodities finance) Typically, structured, short-term financing of inventories or exchange-traded goods (e.g., crude oil, metals, crops) in a manner that manages the volatility of market prices of goods, delivery and transportation risks, country and counterparty risks, as well as risks arising from commercial and legal disputes. This is not a widespread financing form in Hungary, which is not identical to warehouse financing or classic inventory financing.

13. The MNB expects that, in the course of the institution's risk management procedures, it handles at least the IPRE exposure category, which is the most common in domestic practice, separately. However, if a certain exposure sub-category is significant in size or expected to grow at a given institution, it is necessary to distinguish that sub-category and measure its risk profile independently. Depending on the portfolio size, the number of transactions, and the number of observations required for estimation, the MNB expects that the institution develops separate rating models for significant-sized specialized lending exposure segments.

V. ADC Exposures in the Standardized Approach

14. A specific, higher credit risk form of IPRE exposure is the ADC exposure. ADC exposure is also characterized by the fact that its repayment materially depends on the income expected from the utilization – sale, subsequent leasing, or operation – of the development real estate; therefore, a real estate investment whose profitability is not expected from the subsequent utilization of the real estate, but from the broader, independent commercial performance of the enterprise, does not qualify as ADC exposure (for example, it is not ADC exposure when a large enterprise starts a new building investment for its own storage purposes, in which case the loan repayment is ensured by the enterprise's core activity). ADC exposures show more volatile loss ratios, the sources of which are the extra risks of construction and execution, as well as the risk that the terms of lease or sales contracts concluded later may become less favorable due to deteriorating external market conditions. Typically, the following transactions, classified as speculative real estate financing under previous regulations⁴, must be classified into the ADC exposure category:
    a) Transactions provided for the purchase, construction, and development of real estate, with the goal of ultimately selling or leasing them;

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¹ https://www.eba.europa.eu/sites/default/files/2025-09/e7b307b5-efab-4c59-ab8a1b9622ce5b0f/GLs%20on%20ADC%20exposures%20to%20residential%20property%20under%20Article%20126a_HU_COR.pdf ² https://www.bis.org/basel_framework/index.htm ³ https://www.eba.europa.eu/single-rule-book-qa/qna/view/publicId/2024_7201 ⁴ According to Article 4(1)(79) of the CRR, which was in force prior to the entry into force of CRR3.

property is resold with a profit, or b) which is provided for the purchase of land with the aim that the credit transaction is repaid from the proceeds of the sale after the implementation of the type of property development defined in the previous point on the land, or c) which is provided for the purchase of real estate (e.g., land financing), and the subsequent utilization of the real estate is not yet known.

15. With regard to point 14, if the investor has concluded lease or sales contracts related to the ADC exposure, fixing the conditions for revenue generation, and the cash flows derived from these contracts are sufficient to service the debt of the exposure, the institution may reclassify the exposure from ADC exposure to IPRE exposure, and proceed according to the regulations applicable to IPRE exposures. It is not a prerequisite for the reclassification that the construction is completed.

16. According to Article 126a(2) of the CRR, a more favorable risk weight may be applied to residential ADC exposures if at least one of the following conditions is met:
    a) a significant part of all contracts consists of legally binding pre-sales or pre-lease agreements, in which case the buyer or lessee has placed a significant cash deposit that is not refunded in the event of contract termination, or the financing is secured in an equivalent manner, or a significant part of all contracts consists of legally binding sales or lease agreements, including those where payment is made in installments according to the progress of construction works; b) the obligor possesses significant risk-bearing capital, which appears as adequate own funds provided by the obligor in the value of the residential property upon its completion.

17. With regard to point 16(a), a significant cash deposit is considered to be the case if the amount of the cash deposit paid by the buyer, which is not refunded in the event of termination of the pre-sale agreement, reaches or exceeds 10% of the sales price stated in the pre-sale agreement, and the cash deposit paid by the lessee, which is not refunded in the event of termination of the pre-lease agreement, reaches or exceeds 300% of the monthly rent stated in the pre-lease agreement.

18. With regard to point 16(a), financing secured in an equivalent manner may be considered the case if the buyer or lessee has paid in installments or transferred funds to a segregated account, and the aforementioned installments or segregated funds are not refunded in the event of termination of the pre-sale or pre-lease agreement, and their amount meets the measure of the significant cash deposit.

19. For the application of point 16(a), legally binding pre-sales and legally binding sales contracts with significant cash deposits or financing secured in an equivalent manner are considered a significant part of all contracts if the sales price specified in these contracts is equal to or exceeds 50% of the total amount of the credit facility provided by the institution to finance the ADC exposure project related to the obligor – including the drawn and undrawn amounts. In the case where a residential ADC project is financed through syndicated or multiple loans, the institution must take into account the total amount of all loans and credit facilities provided by all institutions to finance the ADC project in calculating the ratio.

20. For the application of point 16(a), pre-lease and lease agreements are considered a significant part of all contracts if the sum of the number of legally binding pre-lease agreements with significant cash deposits or financing secured in an equivalent manner, and the number of legally binding lease agreements, reaches or exceeds 50% of the total number of units forming part of the residential ADC project.

21. If the planned use of the residential property is partly for sale and partly for lease, and the financing of the transaction is provided by the same credit facility – whether bilateral or syndicated loan – the institution must calculate separate ratios for pre-sales and sales contracts (according to point 19) and for pre-lease and lease contracts (according to point 20). The proportion of all contracts is considered significant if both ratios reach the minimum 50% threshold.

22. If the planned use of the residential property is partly for sale and partly for lease, and the institution provides separate credit facilities for the sales part and the lease part, the preferential risk weight for ADC exposure may be applied at the level of credit facilities, provided that it can be ensured that the repayment of the credit facilities used for sales or lease purposes is based solely on the sale or lease of the units. For this purpose, the institution must calculate two separate ratios at the level of credit facilities to assess the significant part of all contracts.

23. With regard to point 16(b), the own funds provided by the obligor are considered adequate in relation to the value of the residential property upon completion if the ratio of the amount of own funds provided by the obligor to the value of the residential property upon completion is at least 25%.

24. With regard to point 23, only those investments made by the obligor in the property qualify as own funds provided by the obligor, which represent only the residual claim of the obligor on the property, whether through the property's own use or through cash flows generated by the sale or lease of the property, which are subordinated to any claims made by the institution as a result of the financing provided, and which are investments realized in the form of one or a combination of the following:
    a) funds available to cover the expected costs of the project, invested in the project and segregated from the obligor's other assets, evaluated in the currency of the obligor's financing and at the time of calculating capital requirements; b) non-refundable grants already invested or available to cover the expected costs of the project, segregated from the obligor's other assets, evaluated in the currency of the obligor's financing and at the time of calculating capital requirements; c) unencumbered, easily marketable assets directly related to the project and available to cover the planned costs of the project, evaluated at their market value valid at the time of calculating capital requirements for these assets, in the currency of the obligor's financing. These assets must be easily sellable or easily tradable on the market. These assets must be contracted to pay for development or construction costs related to the project and must be free from any legal claims, liens, or restrictions; d) development or construction costs directly paid by the obligor in direct connection with the project, evaluated in the currency of the obligor's financing and at the time of calculating capital requirements; e) land or developments paid by the obligor from own sources directly in connection with the project or already owned by the obligor, evaluated at the market value valid at the time of the obligor's contribution to the project, in the currency of the obligor's financing.

25. The own funds paid by the obligor are the total amount of investments recognized according to point 24, to which the obligor has already contributed to the investment, reduced by the currently expected additional costs to complete the property. Additional costs are considered to be the part of the costs already incurred in connection with the completion of the property and the expected costs that exceed the property value determined according to Article 229(1) of the CRR upon completion of the property. The property value is the expected value of the property upon completion, provided that the value of the property does not significantly exceed the market value that could be maintained during the loan term. For the application of this point, "additional costs" is the amount by which the total cost of completing the property exceeds the expected property value upon completion, and not the amount by which the costs exceed the estimated costs at the time of disbursement.

VI. Other Requirements

26. The MNB expects that the institution, at the initial and regular re-evaluation of the client, considers whether the conditions for classification into the specialized lending exposure category are met. The MNB further expects that if the nature or risks of the transaction change, the institution reclassifies the client into the correct exposure segment. The institution must implement the reclassification in the data, analytics, and reports used for parameter estimation.

27. The MNB considers it acceptable only in individual, justified cases for an institution to reclassify all transactions of a client from the specialized lending exposure category to the corporate segment. In connection with the reclassification, the institution must demonstrate, upon request by the MNB, that the triple condition for classification into specialized lending exposure no longer applies collectively (e.g., if the client has demonstrated over several years of operation that the company's activity is separable from the property subject to the transaction, the activity is no longer closely tied to the property, and the company is conducting sustainable operations independently of income from the property).

28. There is no need to resegment a specialized lending exposure client in the work-out phase if the transaction no longer meets the original definition (e.g., if the collateral of the IPRE exposure has been subject to enforcement, or if the transaction is fully impaired). In this case, maintaining the previous specialized lending exposure category is expected, including for the implementation of accurate parameter estimation and the realistic and consistent monitoring of portfolios.

VII. Final Provisions

29. The recommendation is a regulatory tool issued without binding force to supervised financial organizations, in accordance with Section 13(2)(i) of Act CXXXIX of 2013 on the Magyar Nemzeti Bank. The content of the recommendation issued by the MNB expresses the requirements imposed by laws, principles and methods recommended for application based on the MNB's legal application practice, as well as market standards and customs.

30. The MNB monitors and evaluates compliance with the recommendation during its supervision and monitoring activities of financial organizations under its supervision, in line with general European supervisory practice.

31. The MNB draws attention to the fact that a financial organization may make the content of the recommendation part of its regulations. In this case, the financial organization is entitled to state that the provisions contained in its relevant regulations comply with the relevant recommendation issued by the MNB. If a financial organization wishes to include only certain parts of the recommendation in its regulations, it should avoid referring to the recommendation and apply it only to the parts taken from the recommendation.

32. The MNB expects the affected financial organizations to apply this recommendation starting from April 30, 2026.

33. On April 30, 2026, Recommendation No. 10/2017 (August 8) of the MNB on the definition of specialized lending exposures and speculative real estate financing ceases to be in force.

Mihály Varga signed
President of the Magyar Nemzeti Bank