Foreclosure pressure increasing in Hungary

MNB

It is no longer a novelty that a large percentage of banks operating in Hungary are loss making. Those that were heavily involved in property loans have been hit the worst and given the government’s continued drive to drastically phase out foreign currency loans, they are the ones set to bear the brunt.

As if the constantly rising transaction taxes, the unpredictability and the general loss-making outlook weren’t bad enough for the Hungarian banking sector, they also still have to deal with the large volume of foreclosed properties on their hands, seemingly with little success.

While banks now oversee some 115,000 foreclosed assets, according to the Q2 figures released by the finance market regulator PSzÁF (since integrated into the central bank), only 20,912 properties were offered for auction.

On the one hand, there are periodic quotas set for sales, on the other, banks say they aren’t interested in going to auction and would rather try to find a mutual solution that will ensure continued payment from customers. Accordingly, banks aren’t even exploiting their designated quotas in full. PSzÁF’s summer statistics show that between late 2011 and mid-2013, banks only took advantage of 68% to 84% of their allowance, meaning 2,000 to 3,000 assets marked for auction every three months.

It will remain to be seen whether banks change this approach, seeing that after a favorable turn in the first quarter of 2013, regulatory statistics show the sector went back into the red in the second three months of the year. Banks sustained an aggregated loss of HUF 43.5 billion in the period, which subtracted from the first quarter gains of HUF 79.4 billion, leading to the industry’s accumulated HUF 35.9 billion first half result, PSzÁF said.

The period also saw an increase in non-performing loans (policies that are overdue by 90 days or more) by 0.4% to 17.2% in the corporate sector and by 0.7% to 18% for retail customers.  

Going after the money
Despite the statistics showing some lenience paired with self-preservation, there are numerous complaints from clients against the banks and their attempts to reclaim outstanding money. Interest groups representing mortgage debtors unable to pay their debts regularly hold marches in Budapest, voicing their grievances and plastering the bank branches’ fronts with pamphlets.

Others report instances where the banks unilaterally announce drastic increases in monthly installments for loan policies without offering any realistic alternative. In the case of foreign currency mortgages for housing, negative equity is also a well known phenomenon, where exchange rate changes and interest mean that the debt is now higher than the actual value of the asset, so even if its auctioned, the policyholder still has unpaid debts and no place to live.

Nonetheless, the overall perception of banks remains largely favorable. A September survey by Bankmonitor.hu found that 62% of respondents in a representative survey are satisfied with their bank and would recommend it to friends and families.

The surveyed respondents are mostly concerned with how the banking sector’s relations are developing with the central government. Of the sample, 62% said that the banking sector and the government have an “unhealthy relationship and there is a need for more balance”, 37% thought that “despite the disputes they are conducted in a normal manner”, and only 1% thought the relationship was “balanced”.

Bankmonitor.hu manager Balázs Sándorfi said he too was surprised by the fact that there was no major difference in the case of those surveyed who are having debt repayment problems. Even here, 63% said that there would be a “need for more balance”, rather than supporting the government in face of the banks, he said.

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