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Banks see expanding corporate loan market, sluggish retail

More than half of banks expect to see a rise in demand for corporate loans in the first half of 2006, according to a survey by the National Bank of Hungary (MNB) published on Thursday.

Demand for home loans will remain the same, banks said, but they expect consumer loans to pick up compared to the second half of 2005. Surveying the corporate market, the MNB polled seven banks, which together control 85% of the market for corporate loans. The MNB asked twelve banks about the retail market.

Corporate lenders said that the second half of 2005 saw a boom in lending compared to the previous six months, as more SMEs took out loans - many of them to cover operating costs until they received payment for their growing stock of receivables - and banks lowered borrowing requirements and advertised better lending terms in order to remain competitive. The banks said they were not affected by the “chain of debt” seen in some business sectors, especially the construction sector. Asked if they intended to make corporate borrowing requirements more stringent in 2006, just one of the seven banks said yes. Most banks said they planned to lower self-financing requirements, but would raise the premium on riskier loans. They planned to raise the maximum loan amount for SMEs as well, but raise fees for providing these companies with credit lines.

On the market for retail loans, only demand for consumer loans increased, despite more relaxed conditions for both consumer loans and home loans. They said the trend would probably continue in the first half of 2006. About half of the retail lenders said they planned to ease borrowing requirements and introduce better lending terms in the first half of 2006. Just one of the twelve said they would tighten borrowing requirements. Home prices remained unchanged in the second half of 2005, although 29% of banks expected prices to rise when asked in the first half of 2005. Banks asked in the latest survey were more pessimistic about home prices, with 12.5% saying they expected to see a decline in the first half of 2006. Asked about the quality of their portfolios, some banks said they expect deterioration because of more lending to SMEs. Many retail lenders said the quality of their portfolios would deteriorate as households find themselves shouldered with excessive debt, but also because of the growing amount of foreign currency-denominated loans and more relaxed borrowing requirements. Still other retail lenders expect the quality of their portfolios to improve, thanks to  of more sophisticated assessment tools and better collection methods.