Bank Sector Improves Despite Challenging Times


The Hungarian banking sector has been on an upward curve recently, with record profits. Banks expect lending activity to pick up and give a further boost to the industry overall, market players tell the Budapest Business Journal.

“The Hungarian banking sector has improved significantly in the past years. It reached an all-time record profit of EUR 2 billion in FY17 and an outstanding result is also expected for FY18. Nevertheless, we see challenges in mid-term about the sustainability of the current profit level,” MKB Bank tells the BBJ.

According to MKB, the local sector is fragmented with a low level of concentration. The bank says that, compared to the size of the economy and number of clients, the market has “too many universal players”, while cost efficiency is also lower compared to other EU markets. This sentiment is spiced up by increasing competition among banks in the past years in all segments, MKB adds.  

“In line with the economic upswing, consumer loans and mortgage loans have picked up rapidly; in 2019, the focus is on the new Funding for Growth program of the National Bank [of Hungary] in the corporate segment,” MKB adds.

UniCredit Bank is optimistic about the health of the local market, however. “In line with robust economic performance, nice corporate opportunities as well as buoyant consumer confidence, business opportunities for banks have improved markedly in recent times, adding to auspicious banking sentiment,” the Italian-owned bank tells the BBJ.

High Credit Demand

“Recovery of volumes is fueled by high credit demand amid a healthy and sustainable indebtedness level. Also, banking profits have registered eminent figures lately, although it must be noted that several notable one-off factors added to high returns, which will by nature fade going forward,” UniCredit adds.

Despite an anticipated slow down, CIB Bank, which also has an Italian parent bank, still expects growth in the market.  

“Although more modest than in 2018, we expect growth in personal loan and mortgage loan applications in 2019 as well. The reason for this is, on the one hand, that real wages are rising and, on the other hand, that demand in the housing market is expected to remain high, not only affecting housing loan applications but also driving demand for renovation and furnishing related to property purchases,” a CIB Bank spokesperson tells the BBJ.

Budapest Bank, formerly belonging to GE Capital, but now state-owned, also expects the lending market to pick up.  

“In 2019 we expect the lending market to grow, and similarly Budapest Bank to increase its lending activity,” the lender says. It considers profitability to be the biggest challenge; the bank believes growing competition puts increasing pressure on pricing, and therefore margins.

Consumption Realized

“In the retail banking market, there is a strong demand for loans by private individual clients, which is increasing dramatically year-on-year [with double-digit growth], both for consumer loans and mortgages,” UniCredit explains. “This is fueled mainly by postponed consumption of households after the crisis, which is being realized now. Another driver the heavily increasing price of new flats and houses.”

As for the corporate market, the banking sector is vital in supporting the current economic cycle, which is characterized by higher economic growth and a low-interest rate environment, UniCredit believes.

“This adds up to an above average growth rate in corporate loans, adding financing for investments in the corporate sector for capacity increase and innovations,” UniCredit adds.

“While the corporate lending market, in general, showed very dynamic growth recently in an expanding market, the level of competition has remained very high. The current cycle increases the outflow of loans to the corporates, reaching all segments,” the bank says.

Banks operating locally also need to keep a close eye on how emerging technological solutions affect the market and change customer behavior. Although the popularity of mobile banking is on the rise (see “Hungarian Banks Embrace Digital Race for Customers”, Page 14), cash payments still rule the Hungarian market. Card payments are on the up, however, Budapest Bank says.  

“While cash payment is still the most dominant form in Hungary, both with regard to the number and the value of transactions, statistics also show that the annual value of payments using debit and credit cards is on the rise. At Budapest Bank a few months ago we saw a turning point: our clients already spend more money using their bank cards than they withdraw from ATMs. At the same time, card usage is on the rise, while the ATM usage stagnates,” the bank spokesperson says.

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