MNB: Lending to SMEs grows, but total corporate lending declines in Q1

MNB

Image by Jessica Fejos

Credit institutionsʼ lending to small and medium-sized enterprises increased by 3.4% annually in the first quarter of the year, but the total corporate loan portfolio fell by 2.4%, data from the National Bank of Hungaryʼs “Trends in Lending” report released today show, according to Hungarian news agency MTI.

Credit institutionsʼ outstanding corporate loans increased by HUF 94 billion as a result of transactions in 2016 Q1. A breakdown by denomination show forint loans increased by HUF 116 bln, while foreign currency loans declined by HUF 22 bln in the period under review. 

Write-offs and reclassifications reduced outstanding borrowing of non-financial corporations by HUF 24 bln. The volume of undrawn credit lines declined by HUF 72 bln during the quarter. The increase in loans was mainly because of the disbursement of loans and credit lines contracted earlier.

In contrast to growing SME lending there was a decline in total corporate lending. MNB partially attributed this to the portfolio separation implemented within the framework of the resolution plan of the MKB Bank and the debt consolidation of the Budapest Public Transport Centre (BKK). Excluding these, annual growth rate of corporate loans would have been 1.1%.

Credit institutions signed new corporate loan contracts for HUF 378 bln in Q1. Compared to the same period in previous years, this represents a considerable decline, which is partly explained by the contracts advanced to the end of 2015.

In addition to the adjustment to the changed conditions of the third phase of the MNBʼs Funding for Growth Scheme (FGS), the fall may be explained by seasonality, as the volume of new contracts of investment loans is typically lower in Q1.

Within new lending, forint-denominated loans amounted to roughly HUF 287 bln, while the value of euro-denominated loans was HUF 91 bln. The share of short-term loans within total new loans increased to 53%.

Based on the Lending Survey in net terms, 11% of the banks eased their corporate lending conditions. Banks indicated easing mostly in the segment of small and micro enterprises. The majority of banks eased the conditions of the spread between the lending interest rates and the costs of funds as well as the premiums on riskier loans.

The improvement in economic prospects was the biggest driver of easing conditions. Banksʼ also mentioned market share objectives as well as the change in risk tolerance as a factor. Looking ahead, a net 20% of respondents held out the prospect of a general easing in lending conditions.

A net 29% of banks reported an increase in demand for corporate loans. The expanding demand continued to be centered on forint loans, and in net terms 29% of banks indicated a pick-up in demand beyond seasonal effects for short-term loans. Demand for long-term loans was indicated by only 13% of banks, but a net 78% reported a strengthening demand for loans financing housing projects.

The interest rate on new market-based corporate loans declined by 0.5 percentage points on average in the case of large forint loans, but funding costs increased in other segments.

The average interest rate level of euro loans exceeding €1 million rose by 0.1 of a percentage point, so the average interest rate level of large euro loans reached 2.3%, above the 1.7% interest rate level of large forint loans. The average interest rate level of small loans increased by 0.4 of a percentage point both for euro and forint loans. 

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