The National Bank of Hungary's (MNB) proposal to introduce restrictions on foreign currency-denominated retail loans could reduce economic growth by one- or two-tenths of a percentage point in the short term, but it could serve as an incentive for growth in the long term, central bank governor András Simor said in an television interview late Wednesday.
Lending money to people who cannot pay it back will not make the economy grow, Simor said in a program on public television station m1. The restrictions will support further central bank rate cuts in the long term and help balance the current account, thus serving a pick-up in growth, he added.
Simor said Hungarians are too indebted, noting that borrowers in the eurozone pay 11% of their income on average for loan repayments, while Hungarians pay 13%. The rate should be lower in lower-income countries, he explained.
The restrictions would make it very difficult for minimum-wage earners to take out loans. Asked to comment on this, Simor said one must acknowledge that banks can lend only to those who can pay the money back. Lending is not part of the social system, although the state may support borrowers who have fallen on hard times with interest subsidies, he added.
Asked whether Hungarian borrowers would simply take out loans from abroad if the restrictions are introduced, Simor said few people were likely to do so, and if a mass of borrowers did, the MNB could take measures against it. He noted that the Austrian National Bank had banned Swiss franc-based lending in the country and would certainly support a request by Hungary's central bank to restrict cross-border foreign currency-based lending. The European Commission and the European Central Bank have both started separate programs that aim to put the brakes on foreign currency-based lending in Europe, and especially in Central and Eastern Europe, he added.
The MNB announced days earlier a proposal to introduce restrictions on banks' foreign currency-denominated lending. Under the proposal the bank would set loan-to-value and payment-to-income limits to reduce the risk of defaults. (MTI-Econews)