Something really stinks about Hungarian bank deposits

Special bank tax instead of an interest rate floor

In recent months, banks have received a lot of criticism from the MNB, that while loan rates are being raised, in the case of retail deposit interest rates, they do not sufficiently follow central bank interest rate increases, i.e. the monetary transmission does not apply properly. “The central bank continuously monitors the functioning of the monetary transmission and, if necessary, it is ready to take steps aimed at improving the transmission in the relevant sub-markets,” said Barnabás Virág, the vice-president of the central bank, in February. they started to worry about

Instead of an interest floor, the development of the story became a bank tax: Minister of Economic Development Márton Nagy justified the introduction of a HUF 250 billion “extra profit tax” on top of the barely 60 billion “original” bank tax as a new burden by saying that the household funds collected at an average interest rate of 0.3% at the time would be 7% the banks can place it in the vicinity, and they generate extra profit from it. So the government formally skimmed off the surplus that arose at the banks as a difference between rising money market and credit interest rates and low deposit interest rates. More precisely, the expansion of the deposit margin (or a part of it), which by definition is the average difference between interbank interest rates and the average interest rate of their corresponding term deposits, and in a rising interest rate environment is indeed one of the most important sources of bank profit generation around the world. At least temporarily, until deposit interest rates catch up.

Deceptive statistics

At the same time, the MNB’s statistics on new fixed deposit contracts suggest that the situation in bank pricing has also partially resolved: albeit with a delay and to a lesser extent, but based on the statistics, the banks are following the increase in the interest rate environment for deposits as well. While the base rate rose from 0.9% in mid-June last year to 10.75%, meanwhile

  • the newly engaged household HUF deposits average interest rate from 0.3% last June increased to 4.7%,
  • within this (counted without independent businesses and non-profit organizations) retail forint deposits average interest rate from 0.3% rose to 3.8%,
  • the newly engaged corporate forint deposits and the average interest rate from 0.6% increased to 6.5%.

Of course, it is clear that all of them are far from the base interest rate of 10.75%, but at least the banks will pass on something to their depositors from the increase in the interest rate environment. Except the bank conditions in the deposit announcements do not show this.

A Bankmonitor Bank Deposit Finder based on this, we looked at which bank we can deposit HUF 1 million for 1 year at what interest rate without combining it with some kind of investment (e.g. investment fund) or opening a savings account with regular deposits. Most banks still have conditions for achieving higher interest rates, but we will not complicate the picture with these, we will present the highest HUF interest rate available at each bank. It can be seen, that

even the unweighted average of the highest deposit interest rates per bank is only 1.72%, which is far below the 3.8% reported by the MNB for the month of June.

(The high deposit interest rates of MagNet Bank and Gránit Bank may be striking: in the case of the former, it is a variable interest rate product, the details of which Richárd Posch, the company’s banking director, spoke to Portfolio a few months ago, and the latter was published just today, and existing and also available to new customers.)

The highest retail deposit interest rates for HUF 1 million for 1 year
Bank EBKM
MagNet Bank 9,25%
Granite Bank 8,00%
OTP Bank 2,50%
Savings Bank 1,10%
UniCredit Bank 0,25%
MKB Bank 0,15%
First Bank 0,10%
CIB Bank 0,03%
Raiffeisen Bank 0,01%
K&H Bank 0,01%
Unweighted average 1,72%
Source: Bankmonitor, Portfolio

So how does the higher average deposit interest come about?

So when we wrote in the title of our article that something really stinks about Hungarian bank deposits, we were thinking that although the managers of Hungarian banks like to boast that according to the MNB’s statistics, interest rates on retail deposits are also rising nicely, they themselves know very well that that at their own bank, based on the announcements, none of this is typically true, at least at the level of deposits available to average retail customers. But then, how does the statistical average of the MNB come out? We had three different tips (which are not mutually exclusive):

  • private bank customers with a much higher interest rate than in the bank announcements, individual pricing place their money in fixed deposits in large numbers, while other customers hardly choose such,
  • with higher yielding investments combined savings products pull the average up a lot,
  • actually the one offering the higher interest rate smaller banks they move the market, since we are talking about the average interest rate of new contracts, so new placements can be concentrated with them.

The latter two assumptions can be dismissed, on the one hand, because investment returns are obviously not included in the deposit interest statistics, and on the other hand, because, based on the statistics of the MNB, the amount of new deposit contracts is much higher than that of smaller banks offering higher interest rates they are realistically involved as a customer source.

We therefore asked the MNB why the statistics differ so much from the bank condition lists, whether it is conceivable that there is some kind of statistical error involved. In their reply, they wrote, “the MNB’s statistical publications are based on the comprehensive (covering all credit institutions) mandatory data services of credit institutions, which are continuously checked by the central bank. The published interest rates contain multiple weighted average indicators of the data providers. The average annualized deposit interest rate provided to the residential sector for new deposit commitments published by the MNB in ​​the series entitled “Evolution of household forint deposit and forint loan average interest rates” is correct. The higher average interest rate it is partly caused by the effect of large monthly deposit commitmentswhich, in the case of multiple commitments, also take part in the calculation of the aggregated average interest with a multiple weight, on the other hand In June 2022, large treasury deposit commitments also took place, which further increased the impact. Therefore, it may be worthwhile to take into account the development of interest rates weighted by the snow-end stock.”

In other words, since we are talking about residential customers, mainly private bank clients based on individual offers and commitments for a short period of time, even within a month, can significantly move the statistics. The interest rates mentioned in the MNB’s answer, weighted by the balance at the end of the month, are shown in the figure below. Since these are average interest rates weighted by the total stock, they change more slowly than the average interest rates of new contracts, but the distorting effect of commitments within the month does not prevail in them. Based on this, it can be said that

banks pay 0.15% interest on an average household demand forint deposit, and 1.39% on a fixed-term deposit, which represents an increase of only 12 and 86 basis points in one year, respectively.

The stock of these deposits also shows that retail customers did not rush to the banks to tie up their savings in their bank accounts.

THE TOTAL STOCK OF TERMINATED HOUSEHOLD HUF DEPOSITS EVEN DECREASED BY 1.6% OVER ONE YEAR AND COMPRISED ALL OF 16% OF THE TOTAL HOUSEHOLD DEPOSIT STOCK: AT THE END OF JUNE, IT WAS HUF 2,168 BILLION.

The monthly commitments mentioned by the MNB can also explain why the fixed deposit portfolio is not increasing, while the contractual amounts have risen significantly in recent months.

Banks are therefore clearly not forced to compete en masse for customers with high interest rates, even if the statistics suggest that something has started. A total of HUF 10,827 billion at the end of June demand deposits are 15.9% higher than a year earlier, despite the near-zero interest rate.

The banks its liquidity position is excellent even without intense deposit competition: their liquidity coverage ratio (LCR) stood at 235% of the regulatory minimum at the end of March, and their consolidated (that is, including foreign loan and deposit portfolios) loan/deposit ratio was a safely low 80%.

Cover image: Getty Images


Source: Portfolio.hu – Bank by www.portfolio.hu.

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