The Hungarian population is not in debt, we still have huge borrowing reserves

Hungary’s competitiveness is practically stagnant, after 47.4 points in 2020 we achieved 47.6 points in the MNB’s Competitiveness Report – the from a document presented on Wednesday. This puts us in 18th place in the European Union, according to a report from the central bank, which is an improvement over last year, but only because, due to Brexit, the UK is no longer on the list. More details:

General findings on banks

More general findings on banks in the Competitiveness Report:

  • Ensuring the availability of efficient and stable bank financing is essential for maintaining domestic economic convergence.
  • While in the corporate segment the domestic banking system can be placed in the middle of the EU in terms of pricing, on the retail side there is a moderate competition for the APR-based premium on housing loans.
  • For all segments and loan products, the predictability of installments should be sought.
  • In order to maintain the long-term role of the banking system in supporting the economy, a strong ability to raise and attract capital and to avoid the build-up of systemic stability risks are essential.
  • The digital presence is also an increasingly important competitive advantage in the provision of financial services, while the importance of flexibility arising from digital operations has also been highlighted by Covid19.
  • In addition to the digital transformation of existing financial institutions, the existence and development of an advanced fintech ecosystem and the institutional-legal environment that supports it is also of paramount importance.

More specific findings

In 2020, due to central bank and government loan programs and the payment moratorium, the private sector loan portfolio continued to expand and GDP fell, so that by the end of 2020 its level as a share of GDP had already exceeded 35 percent after the previous level of around 30 percent. However, this value remains a substantial reserve for further prudent lending expansion.

At the end of the first quarter of 2020, the coronavirus epidemic reached Hungary with an annual corporate loan dynamics of over 15 percent, which later decreased to close to 9 percent by the end of 2020 due to the negative effects of the virus on the economy. However, lending cannot be considered overheated.

According to the EIB’s investment survey, in the financial year 2019, almost 6 per cent of companies operating in the EU, while more than 13 per cent of Hungarian companies, faced financing constraints. As a result of the deterioration of almost 5 percentage points compared to 2018, domestic companies faced the level of financing limit experienced in 2015. There is room for improvement, according to the central bank, through the diversification of funding channels and the improvement of the efficiency of the institutional guarantee system.

The spread on domestic housing loans continues to exceed the average of both the euro area and other Visegrad countries. In 2020, despite the rise in reference yields, lending rates declined, leading to a general decline in spreads. With this, we reached the top of the Visegrad countries again. At the end of 2020, the average interest rate spread on domestic housing loans was 2.5 percentage points, which is 60 basis points lower than in the same period of the previous year.

As a result of the FGS fixed scheme launched in 2019, the share of fixed-rate loans returned to the desired level above 50 percent, and as a result of the FGS Hajra launched in April 2020, in lending.

While at the beginning of 2016 the share of floating rate loans in new housing loan issuance was still 42 percent, by the end of 2019 the introduction of Qualified Consumer Friendly Housing Loans (MFL) and the differentiation higher risk loans. As a result, by the end of 2020, the share of floating-rate retail mortgages in the portfolio had fallen to 40 percent from 70 percent in 2016.

The domestic debt-to-income ratio is one of the lowest in the European Union, and even a substantial catch-up reserve can be identified compared to the other Visegrad countries, the central bank states.

From 2017 to 2019, partly due to the reversal of previously formed impairments, the domestic sector was consistently on the podium in the EU, with a 5th place in return on equity in 2020.

The non-performing loan ratio remained largely helped by the payment moratorium introduced and then extended in March 2020, both through the prevention of new delays and the positive impact on total credit growth, but the growing credit risks are reflected in the increase in Stage 2 loans and an increase in impairment coverage.

Outstanding operating costs are a constraint on profitability and pricing of banking products. The competitiveness reserve exists in all sub-items – personnel expenses, administrative expenses, depreciation. From the second half of 2019, the asset-proportionate operating costs of the consolidated sector decreased in a trend-like manner, to which cooperative integration contributed greatly, but with the expansion of financial penetration and digitalization, there is still room for improvement.

Cover image: Getty Images

Source: – Bank by

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