Hungarian banksʼ booming lending business shows no signs of overheating and lenders are well-prepared to manage external risks, but financial institutions still need to boost their efficiency through digitalization or consolidation, the National Bank of Hungary (MNB) said in its biannual Financial Stability Report, state news wire MTI reports.
MNB noted that local banksʼ retail loan portfolio expanded by 13.8% in the twelve months to the end of September, while their corporate loan book grew by 15.4%.
"The expansion in loans outstanding took place in parallel with a strengthening in economic fundamentals, and at present it does not show any signs of overheating either in terms of volume or composition," MNB said.
The report points out risks to Hungarian lenders posed by "deepening trade and geopolitical tensions" and "increasing fears of recession in some regions" paired with expansive measures by central banks, but says the domestic banking sector has "strengthened considerably" since the 2008 financial crisis and "has prepared itself for the risks stemming from the deterioration in the external environment".
The report acknowledges that, against the backdrop of a strong domestic economy, the banking sectorʼs profitability is "outstanding even in an international comparison", but adds that earnings have been lifted by the release of risk provisions.
MNB said the Hungarian banking sector lags behind its European peers in terms of efficiency and urged lenders to take appropriate measures. Meeting the challenges of "increasingly intensive" competition from fintech companies as well as higher expectations from clients in a low-yield environment forces lenders to increase their efficiency "by way of either digitalization developments or mergers and acquisitions", it added.
Among risks facing the banking sector, the report noted a potential overvaluation of home prices in Budapest, but said lendersʼ exposure to changes in the real estate market is low. It added that strong demand for the Hungarian Government Security Plus bond for retail investors could cause the marked rise in home prices to slow.