Hungarian banks' lending capacity weakens
Hungarian banks lending capacity is weakening because of deteriorating financing, a quarterly survey of bank lending practices by the National Bank of Hungary (MNB) shows.
Banks tightened credit conditions in every market segment in Q4, and they expect to tighten further in the first half of 2012, the MNB said in the report on the survey published on Thursday. The ratio of banks indicating worsening lending capacity was the highest since the start of the financial crisis in September 2008, it added.
The survey, conducted in January, showed "funding conditions for domestic banks had tightened and become more expensive, resulting in deterioration in their lending capacity" to companies, the MNB said. At the same time, big eurozone banks are shoring up their balance sheets by restraining lending, resulting in tighter funding conditions at their units in Hungary too, it added.
The MNB noted that the Hungarian banking sector is "unprofitable at the moment" because of an early foreign currency-denominated mortgage repayment scheme and an extraordinary bank levy.
This puts domestic banks at a disadvantage in the allocation of external funding within the region, MNB senior economist Dániel Homolya said.
The worsening liquidity position and refinancing difficulties were behind the tighter credit conditions in the fourth quarter, banks said in the survey. They added deteriorating economic prospects as a third major factor behind their plans to tighten conditions further in the segment, MNB expert Gergely Fábián said.
Demand of businesses for short-term loans continued to rise, banks polled said. This may have reflected rising exports in H1 2011, a decrease in suppliers' credit and more demand to finance maintenance activities as investments in machinery were delayed, the NBH said.
Demand for long-term development loans weakened from Q3 and banks expect a further reduction in H1.
The banking system's capital buffer rose last year and is adequate on the whole, Fábián said. He noted, however, that the buffer has become more concentrated, with two-thirds held by three banks. The survey also showed credit conditions for retail loans had tightened and a "major part" of the banking sector was focusing on the premium segment.
The survey also showed credit conditions for retail loans had tightened and a "major part" of the banking sector was focusing on the premium segment.
The MNB's experts said banks may wait to make new lending a priority until the early repayment scheme for foreign currency-denominated mortgages winds up and the deadline for application for an exchange rate cap scheme passes.
The early FX mortgage repayment scheme, under which borrowers could avail of discounted exchange rates, wound up at the end of February. The application deadline for the exchange rate cap scheme for borrowers with FX loans is the end of 2012, and the scheme runs until June 2017.
The MNB said measures it announced in February could "mitigate" the deterioration in lending capacity.
The central bank recently said it would start a universal mortgage bond purchase program and proposed changes to legislation allowing any commercial bank to issue mortgage bonds. It also announced the launch of a two-year collateralized loan for banks and said it would broaden the scope of securities that may be put up as collateral.
The survey showed about 80% of banks had tightened credit conditions again for local councils. Banks consider the segment "very risky" and lending to local councils is expected to be "strongly restrained", the MNB said.
Banks are taking a wait-and-see attitude until the details and consequences of amended legislation on municipalities, including limitations on their capacity to raise loans independently, is clarified, the central bank added.
Banks reported worsening portfolio quality in every segment in Q4, and expect the trend to continue in the corporate lending segment in H1. The retail loan portfolio quality deteriorated in Q4, in part because the early FX mortgage repayments reduced the stock of good loans, Homolya said. The prospects here are less certain considering the "natural worsening" of the decreasing stock on the one hand and the end of the repayment scheme and the affect of the exchange rate cap on the other, he added.
Some details of the exchange rate cap are still open, he said, adding that banks said in January the scheme could attract many of the affected borrowers and may support their ability to repay.
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