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Banks are confined to restructuring, MNB Q1 lending report says

Credit conditions in the corporate sector have been tightened further and no turnaround is expected, the National Bank of Hungary (MNB) said on Thursday in its Q1 lending survey based on banks' responses.

Compared with the previous survey, reduced ability to lend, rather than risk appetite, was cited by banks as contributing to tightening. The survey also found that although 18% of outstanding commercial real estate loans had already been restructured by the end of 2011 Q1, a new wave of restructuring was expected.

Banks reported that they had tightened credit conditions to the corporate sector further since the February 2011 survey that covered Q4 2010, and the tightening was expected to continue over the next six months.

Banks cited tightened and more costly access to external foreign currency funding and weak ability to accumulate and attract capital stemming from low profitability as the main factors contributing to tightening.

Credit conditions on housing loans remained broadly unchanged, and banks did not expect any major shift over the next six months. Net 18% of banks reported that they had tightened conditions on consumer credit in Q1, while a net 7% expected to ease conditions over the next six months. Banks are willing to increase the availability of credit, but without easing credit conditions to the household sector.

The ratio of restructured mortgage loans to total mortgage loans have increased by around one percentage point. As a result, 10.4% of outstanding mortgage loans had undergone restructuring by the end of Q1. However, it is too early to draw firm conclusions about the success of restructuring, given that grace periods on about two-thirds of restructured mortgage loans with reduced debt servicing burden have not yet expired.

Based on banks' responses debt restructuring is prevailing in commercial real estate lending as well. Banks had restructured 18% of total commercial real estate loans by the end of Q1, and they expect the ratio of restructured loans reach 30% of commercial real estate loans outstanding by the end of the year.