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August 03, 2018

IMF published its staff report under the 2018 Article IV consultation with Hungary. The staff report, among others, concludes that the banking system remains, on average, profitable, liquid, and well-capitalized. Bank profitability was high in 2017 and only a few small banks reported losses.

The report also reveals that the nonperforming loans (NPL) ratio declined from 7.4% to 4.2% during 2017, mainly due to sizable NPL sales, increased lending, and better debt service by borrowers. This trend is reported to have continued during the first quarter of 2018. After a long "credit-less" recovery period, bank lending to non-financial companies—particularly to small and medium enterprises—is growing by nearly 11%. Credit to households—mainly mortgages—is also growing, albeit at a slower pace. Credit growth is expected to remain strong, while NPLs will likely decrease further. Lending surveys suggest that both demand and banks' willingness to lend have improved. Deposits increased rapidly, further reducing the loan-to-deposit ratio. The preliminary data for 2017 report the average tier I capital ratio at 14.4% and capital adequacy ratio, or CAR, at 16.4%.

Staff also welcomes the continued strengthening of off-site reporting and emphasized the importance of on-site inspections as well. Staff noted the continuing progress in consolidating credit cooperatives, which can contribute to enhancing efficiency and help meet the authorities’ objective of reducing the relatively high intermediation costs. Staff highlighted that consolidation should remain market-based. The authorities concur with staff that, although real estate prices are not currently overvalued, close monitoring remains warranted. They also stressed that while macro-prudential tools can help contain financial sector risks, the housing boom should be seen in a broader context, including the low level of household debt compared to peer countries. Furthermore, Magyar Nemzeti Bank, or MNB, reiterated its commitment to continuously enhance its supervisory practices and guidelines in line with EU requirements.


Related Link: Staff Report

Keywords: Europe, Hungary, Banking, Article IV, NPLs, CAR, IMF

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