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MNB: Household loan stock declines but new lending rises in 2015

Sustainability

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The stock of domestic banksʼ loans to households continued to decline but new lending rose last year, the National Bank of Hungary (MNB) said in a report on Friday.

The governmentʼs expanded home purchase subsidy scheme for families with children, known by its Hungarian acronym CSOK, is expected to add 1.3 percentage points to retail lending stock by the end of 2017, Gergely Fabián and Zsolt Oláh of the MNB said in response to journalistsʼ questions following the introduction of the report on Friday. 

While generating about HUF 90 bln in additional demand for loans over the next two years, the revamped subsidy scheme that favours the construction of new homes could rechannel borrowing from resale homes which currently represent the bulk of home lending, they said.

The stock of retail loans fell by 15.1% by the end of 2015 from a year earlier, the report said. The contraction was 4.5% if cleared of the effects of the conversion of FX loans into forints and the compensation retail clients received from banksʼ “unfair” practices.

The stockʼs unadjusted twelve-month decline accelerated from the 14.6% drop in the previous quarter, while the adjusted drop was level compared to Q3.

At the same time, the volume of new retail loan contracts rose 27% compared to Q4 2014, the report said. New lending for homes rose an outstanding 42%, still somewhat below the pace expected by banks who expect the pickup to continue. The volume of new home loans amounted to HUF 187 billion in Q4, similar to that in the previous quarter.

New free-purpose mortgages were up 9% and other consumer loans were up 15%.

The MNBʼs lending survey showed that demand for home loans increased and is set to continue to rise, in spite of unchanged lending conditions. A net 21% of the banks surveyed reported they had eased conditions on consumer loans.

In Q4 alone, the net decrease in the stock of home loans and other loans - measured as the balance of the transactions and other flows - amounted to HUF 41 bln and HUF 107 bln, respectively.

Transactions cut the stock of household loans by HUF 111 bln, of which HUF 22 bln reflected the one-off effect of the conversion of car loans and personal loans into forints. Banks converted HUF 124 bln of FX loans into forints in the quarter, but, due to the preferential exchange rate used in the conversion, the volume of transactions fell by about HUF 22 bln.

The average APR on secured forint home loans was unchanged at 5.8% on new contracts. However, there was an inherent heterogeneity, as APR on floating-rate home loans increased by 0.3 percentage points, while the APR on fixed-rate loans declined by 0.2 percentage points.

MNB found that, on the whole, the financial intermediary system had a neutral impact on the consumption of households.

In Q4, a net 56% of banks reported higher demand for home loans and 41% indicated an increase in demand for consumer credit. Looking forward, 97% expect a pick-up in demand for home loans, and 34% see higher demand for consumer loans.

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