MNB deputy governor urges countercyclical lending
National Bank of Hungary (MNB) deputy governor Márton Nagy pressed the countryʼs banks to lend as a way to cushion the economic impact of the coronavirus pandemic, telling an online conference on Tuesday that this crisis, unlike the last one, requires a countercyclical approach, Hungarian news agency MTI reports.
Procyclical behavior by banks would only deepen the crisis; the only rational solution in this situation is lending, Nagy said at the conference organized by Portfolio.hu. Lending is the key both to defense from economic fallout and to jump-starting the economy, he added.
Hungaryʼs banking system is up to the task, and it is getting support from the government and MNB, Nagy said.
He said liquidity management is a priority in managing the crisis and noted a number of measures the central bank has taken to boost liquidity, such as easing the capital conservation buffer and suspending sanctions for reserve requirement shortfalls. Lending incentives have also been introduced, he added, noting the launch of the latest phase of the MNBʼs Funding For Growth Scheme - FGS GO - on Monday.
The local banking system is resilient, but its ability to lend is still questionable, which is why measures have been taken to strengthen this ability, Nagy added.
He said an MNB survey shows that the pandemic has caused both supply- and demand-side shocks that will impact banksʼ retail and corporate clients.
About 63% of companies reported supply chain interruptions after the coronavirus outbreak and 58% reacted by shutting down production or services within two weeks, according to the survey. One-third of companies have postponed investments, 30% are weighing layoffs and 9% expect to fall behind on paying invoices.
MNB data show the sectors hardest hit by the pandemic account for HUF 700 billion-800 bln of banksʼ lending stock, Nagy said. Short-term credit accounts for a large part of corporate loans, and banks must be prepared to roll that over, he added.
About half of companies are experiencing liquidity difficulties, he said. Most are managing the situation by digging into reserves and optimizing payroll, he added.
MNB, as well as the government, projects a fast rise in unemployment, he said, adding that the time required for the labor market to recover would take about four times as long, judging from experience till now.
Borrowers working in sectors most vulnerable to the economic impact of the pandemic account for about 60% of retail lending stock, Nagy said.
He said MNB expects businesses to draw down about HUF 900 bln in FGS GO by year-end, and the entire HUF 1.5 trillion available could be used up by June or July of next year.
Under the scheme, MNB is providing refinancing loans to banks at 0% for SME loans with a rate of no more than 2.5%. The loans may be used for a broad range of purposes, including for working capital.
He projected a 5% increase in corporate lending stock this year, and a return to earlier double-digit growth in 2021.
A contraction in retail outlays has yet to be seen, and that segment could start showing double-digit growth again in 2021, too, he said.
Borrowersʼ deteriorating or vulnerable creditworthiness is likely to generate losses of HUF 300 bln-350 bln for banks this year, Nagy said. He added that the sectorʼs profits added up to HUF 450 bln last year.
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