MNB: Banking sector ROE could reach 6-8% in 2016-2017


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A lower tax burden, lending growth and improved cost efficiency could raise the return on equity of Hungaryʼs banking sector to 6-8% in 2016-2017, the National Bank of Hungary (MNB) said today, according to Hungarian news agency MTI.

In the longer term, ROE could increase to 10%, in spite of higher regulatory capital requirements, the MNB said in its biannual Financial Stability Report. The central bank added that a clean-up of distressed assets and a sector-wide consolidation are necessary to further improve cost-to-asset ratios, MTI reported.

“This trend could be suitable for the banking sector to be able to adequately support sustainable economic growth over the long term,” the central bankʼs Financial Stability Council said in a summary of the report.

The report projects a 5-10% increase in banksʼ outstanding stock of SME loans in 2016-2017, pointing to a recovery of market-based corporate lending. SME loan stock was up 3.6% year-on-year in the second half of 2015, it noted.

The Council conceded that overall corporate loan stock contracted by 2.1% last year, but said SME lending is a “more reliable indicator” of credit market trends. SMEs play a “pivotal role in terms of sustainable and inclusive growth”, while big companies can easily substitute domestic bank loans and the large size of their loans can distort figures for the overall market “to a great extent”, the MNB explained, according to MTI.

The MNB expects a surge in home prices to continue, driven on the demand side by increasing employment, higher real incomes, a low interest rate environment and expanded subsidies. On the supply side, new home construction “remains subdued both in historical and international comparisons” which could lead to “market frictions”, the report said.

“Currently the rise in housing prices and demand for housing loans is not excessive, while the central bank macroprudential safety net also ensures sound lending. Nonetheless due to market frictions and external impacts, MNB has to closely monitor the real estate market and lending for housing,” the Council said, according to MTI.

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