Banking Assoc Criticizes Extension of Lending Rate Freeze to SMEs


"The high level of burdens on banks and the uncertainty caused by subsequent intervention in contractual relations has now reached a critical level, which can only result in a significant decline in retail and corporate lending activity," the Hungarian Banking Association said on Friday, according to a report by state news wire MTI.

The association said the government decree extending a freeze on lending rates to SMEs "further distorts market conditions and questions the legal binding force of private law contracts. It is the fundamental interest of banks that their customers - be they private individuals or businesses - maintain their solvency, fulfill their contractual obligations, and develop. Banks have so far also provided targeted assistance to customers in need, and remain partners in the development of all fair and proportionate solutions aimed at this. The lending rate freeze in its current form is neither proportionate nor targeted," the association said. 

The banking association said the products of the Széchenyi Card Scheme have been some of the main pillars of SME lending during the pandemic, which significantly contributed to meeting the liquidity and investment needs of small and medium-sized businesses. Adjusting these products to the higher interest rate environment would provide important help to businesses in the current period as well, the association said. 

The association also said that the banking sector's main activity is to continuously provide credit to the economy, therefore, during crises like the current one, it is particularly important that the sector's lending capacity is not damaged. 

The association warned that "legal uncertainty results in distorted market conditions and reduced lending capacity, which weakens the banking sector's ability to protect and strengthen the economy". This, in turn, will necessarily increase the economy's vulnerability and result in a slowdown in convergence with the European Union average, the banking association.

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