The willingness of Hungarian banks to lend to households and businesses fell substantially in the second half of last year, with lenders expecting further deterioration in their loan portfolios this year, the Hungarian central bank said Monday.
The increasing turbulence in the Q4 of 2008 triggered “a sharp turnaround” in lending behavior, forcing banks to tighten credit significantly, National Bank of Hungary (MNB) said in a report presenting the findings of its latest survey on bank lending.
Nearly all banks surveyed reported that they had tightened credit conditions for both housing loans and consumer loans in the second half of last year, and most of them expressed their intention to tighten conditions further in the H1 of 2009.
“Thus far, banks have not experienced deterioration in the household loan portfolio to any significant extent, but in view of the unfavorable economic prospects, the effect of the financial crisis on the real economy and the weakening of the forint, they anticipate significant deterioration” in the H1 of 2009, the central bank said.
Hungary has been one of the countries in eastern Europe hardest hit by the global economic crisis. Last November, Hungary sought emergency loans from several multinational institutions. It received a $25 billion financing package to which the International Monetary Fund committed $15.7 billion, the EU pledged $8.4 billion and the World Bank, $1.3 billion.
Since last July, the Hungarian currency, the forint, has fallen about 40% against the US dollar. In the corporate lending market, willingness to lend also fell sharply, particularly affecting loans to large and medium-sized enterprises as well as commercial real estate loans.
The deterioration of banks’ corporate loan portfolios seen late last year is expected to continue in the H1 of 2009, particularly in the agriculture, manufacturing, construction, tourism, financial services and real estate sectors, the central bank said.
Hungarian banks also reported significantly weaker demand for foreign currency housing loans, the central bank said. There was “a considerable decline” in household loans denominated in Swiss francs.
Many mortgages in Hungary are denominated in foreign currencies, particularly the Swiss franc. The recent strength of the franc has worsened Hungary’s troubles.
Last week’s weakening of the franc on the back of intervention by the Swiss National Bank is helpful for the Hungarian forint and other central European currencies, according to analysts. (Marketwatch)