MNB urges banks to improve cost efficiency
Hungarian banks need to make their businesses more efficient to overcome the challenges of persistently low interest rates and technology developments, the National Bank of Hungary (MNB) said in a report issued today, according to Hungarian news agency MTI.
The MNB noted in its biannual Financial Stability Report that the return on equity of the Hungarian banking sector reached almost 9% in the first half of the year, in part due to one-off factors such as the release of provisions, but it warned that narrowing interest margins would put banksʼ structural profitability under pressure in the mid-term. The central bank and financial market regulator added that the sectorʼs cost-effectiveness has not improved significantly over the past several years, in spite of efforts to streamline, and that the management of non-performing loans "continues to take up substantial capacities."
The MNB suggested that meeting these challenges could require a consolidation of the banking system, adaptation to new digital trends in banking, and a reduction in NPLs. Cost efficiency can be fostered by competition, especially price competition in the retail segment, it added.
The MNB said it will "devote special attention" in the near future to examining measures that could stimulate competition in the banking sector, while stressing the importance of preventing any market playerʼs "excessive dominance" on a post-consolidation market. The MNB warned of the risk of oligopolies forming in certain regions if banks, rather than consumers, are the benefactors of improved cost efficiency. It suggested that the digitization of banking services could prevent this by eliminating geographical constraints, but said that Hungariansʼ financial literacy, as well as relevant legislation, needs to be "adjusted accordingly" for the benefits to be realized.
SUPPORT THE BUDAPEST BUSINESS JOURNAL
Producing journalism that is worthy of the name is a costly business. For 27 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.
Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.