Savings ought to finance lending in Hungary, says central bank governor

Savings ought to finance lending in Hungary, National Bank of Hungary governor Andras Simor said at a conference organised by the central bank on Thursday.

Making savings ought to be encouraged and banks should strive to bring their loan-to-deposit ratio close to 100pc, Mr Simor said.

Mr Simor urged the introduction of a kind of forex adequacy indicator in the Hungarian banking system that would reduce the risk of forex lending. The scale of possibility for domestic mortgage-based lending must be broadened, he added.

Mr Simor said the bank levy should be scrapped, or at least reduced to levels in other European countries, in the interest of improving the competitiveness of the banking sector and boosting corporate lending.

Since the start of the crisis, the government has taken a number of positive and negative steps that have significantly influenced the situation and activities of Hungarian banks, he added. Mr Simor counted the elimination of the mandatory private pension fund system and the limiting of foreign currency-denominated lending among the measures he termed unfavourable.

The introduction of the bank levy was especially bad for banks, but also damaged the development and the expansion of the whole Hungarian economy, he added. Mr Simor acknowledged that bank taxes had also been introduced elsewhere in Europe, but noted that the one in Hungary was five or even ten times the size of those.

Mr Simor said a government scheme that allows full, early repayment of foreign currency-denominated mortgages at discounted exchange rates was help to only a thin, wealthier layer of society in its current form and ought to be wound up as soon as possible. Problems involving foreign currency-denominated lending and troubled retail borrowers with foreign currency-denominated loans have to be solved using tools that do not increase the banking system’s vulnerability, he added.

Mr Simor counted the lifting of the moratorium on evictions and the introduction of reference interest rates for retail borrowers among the government measures that have affected banks positively.