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More SMEs shut out of credit market, MNB lending survey shows

MNB

Banks have tightened non-price credit conditions for micro and small businesses and on commercial real estate lending and expect to hike mortgage lending rates in the next six months, a quarterly survey of bank lending practices by the National Bank of Hungary (MNB), conducted in October and published on Thursday, shows.

The decline in the number of borrowers with access to credit can be attributed to falling risk appetite and the recent deterioration in banks’ lending ability (weaker capital and liquidity position). Since the publication of the previous lending survey, the global economic outlook has deteriorated, the sovereign debt crisis has escalated, and risks in the euro-area banking sector have increased. These developments have resulted in a deteriorating lending capacity of the euro-area banking sector, leading to tighter credit conditions and stagnation in corporate lending, which had expanded dynamically in previous quarters in the euro area. The economic outlook in Hungary has deteriorated as well, while deteriorating portfolio quality and the impact of the early repayment program on the banking sector are additional domestic risk factors. Contagion risks via parent banks have increased significantly. As a result, non-price conditions for micro and small-sized firms and on commercial real estate lending were reported to have tightened.

The interest rate on forint-denominated corporate loans has stagnated around 8.5 percentage points for a long time. There is strong asymmetry, however, as the interest rate mainly reflects conditions for customers with excellent scoring. Due to the tight credit conditions, the range of creditworthy borrowers has narrowed significantly, and thus borrowers financing at higher interest rates have no access to credit. Small and medium-sized enterprises which still have access to credit are able to borrow at rates higher than the average, at above 10%.

As regards the credit conditions of the household segment, there was no material change in Q3, while banks reported that they expected a broad-based tightening, mainly through increasing mortgage lending rates, over the next six months.

The MNB launched its questionnaire-based survey in the spring of 2003. The survey, conducted on a quarterly basis, gathers information on Hungarian commercial banks’ lending practices. It aims to present banks’ assessments regarding domestic market credit conditions. The latest survey is based on questionnaires completed by banks in October 2011: it reflects their responses to backward-looking questions relating to 2011 Q3 and their expectations for 2011 Q4 – 2012 Q1.

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