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Conditions ease for retail credit, tighten for corporate loans

Conditions for retail loans eased but corporate credit conditions continued to tighten in the second quarter, according to a survey of loan officers published by the National Bank of Hungary (MNB) on Wednesday.

Credit conditions for both home and consumer loans eased in Q2, following a tightening at the end of 2011, according to the survey. The loan officers said they saw a decline in demand for retail loans compared to Q1, but expect the trend to change in the second half of the year. A state interest rate subsidy scheme for home loans could support the shift, bringing the annual percentage rate on the loans from 13% at present to around 9%, they added.

The survey shows a net 25% of banks reported they had eased credit conditions for home loans, reflected in a higher payment-to-income ratio and loan-to-value ratio as well as lower interest rate spreads. Asked about the outlook for the second half of the year, a net 44% of banks said they planned tightening in the premium for riskier loans but further easing in other price and non-price credit conditions. Only a net 4% of banks plan tightening in H2.

A net 7.5% of banks said they had eased credit conditions for consumer loans and 22% planned further easing in H2. Only among car loans did a further tightening take place, though this is not expected to continue in H2.

A net 20% of banks said they perceived a decline in demand for home loans, well under the 50% who said the same in the previous survey. A net 20% of banks also said demand for consumer loans had dropped. A net 76% of banks expect an upswing in the retail segment in H2.
The loan officers said credit conditions in the corporate segment tightened in Q2, as in previous quarters.

The survey shows a net 30% of banks indicated they tightened corporate credit conditions for both big companies and SMEs. The tightening was reflected in the minimum required credit score, higher interest rate premiums and risk premiums, as well as in the fees charged for extending loans and credit lines and monitoring requirements.

Banks' low propensity to lend, because of the unfavorable macroeconomic environment, affected the tightening to a greater extent, while the effect of lending capacity declined, the MNB noted in a summary of the survey. The central bank added that the outflow of foreign funds slowed in Q2 -- many of Hungary's banks have foreign parents -- and in the case of net 16% of banks, the liquidity situation of banks points to an easing of credit conditions.
Compared to Q1, demand for short-term loans continued to grow while demand for long-term loans declined, in line with the earlier trend. A net 30% of banks said demand was down for long-term loans.

A net 22% of banks expected a further increase in the demand for short-term loans in H2. None expected any change in demand for long-term loans compared to Q2.