PSZAF sees domestic savings financing half of early FX repayment scheme

Hungarian financial market regulator PSZAF estimates about half of the resources that will be soaked up by a scheme allowing early repayment of foreign currency-denominated mortgages at discounted exchange rates will come from domestic savings while the other half comes from abroad, PSZAF said in risk report for the third quarter published on Monday.

The scheme, launched at the end of September, is likely to eat up the banking sector’s profit in Q4, PSZAF said.

Demand for lending weakened in the third quarter as economic growth slowed and the outlook became more uncertain, the regulator said. Banks’ stock of non-performing loans continued to rise, it added.

PSZAF acknowledged the negative effect of the bank levy and the early forex repayment scheme on banks, but said about two-thirds of the deterioration in banks’ profitability was the result of risk reserves for the higher stock of NPLs.

After a temporary slowdown in Q4 2010, stock of NPLs grew at an accelerated rate and is expected to do the same in the first half of 2012, the watchdog said. The main source of the increase remains retail mortgage loans, it added.