The Hungarian National Bank (MNB) published the results of its banking business survey for the fourth quarter of 2022, addressed the slowdown in growth of corporate and retail lending amid an increasingly uncertain economic environment, and recommended that Revolut Bank should operate as a domestic subsidiary bank in Hungary to protect its customers.
The banking business survey results show that 38% of banks perceived a deterioration in the economic situation in the fourth quarter of 2022 and a net 34% of banks expects a worsening economy in the first half of 2023. According to the banks, macroeconomic conditions generally contributed to the deterioration in the economy, but negative shifts in customer risks, profitability, and the availability of funds also had an adverse effect on the assessment of the banking situation. Among the factors affecting the deterioration of the economic sentiment in the next six months, the decrease in profitability and the increase in customer risks may be the determining factors, while a significant minority of banks expect further deterioration of the macro environment. The results also highlight that the increase in market competition is the only factor that had a positive effect on the economic sentiment. The competition has intensified in the retail and corporate credit markets, as well as in the field of payment services and against non-bank players. Looking ahead, the banks expect increased competition in all areas, including 45% in the retail sector, in line with reduced demand due to rising interest rates, and 34% in the corporate sector, in connection with the increasing number of announced subsidized loan programs.
With regard to lending, MNB indicates that the corporate loan portfolio of credit institutions increased by 14% in 2022, primarily supported by large corporate loan transactions; however, the annual growth rate of household loans slowed down to 6.3% in the second half of 2022, with contribution from higher repayment activity than before and declining new loan issuance. Overall, the conditions for obtaining credit for companies tightened in the fourth quarter of 2022. Based on the results of lending survey, 17% and 27% of credit institutions, respectively, further tightened the terms of housing and consumer loans, which may continue in the first and second quarters of 2023. Looking ahead, about one-third of the banks plan to tighten the standards in the first half of 2023, parallel to this, a decrease in demand for HUF loans and longer-term loans, while in the case of foreign currency loans and short-term loans, they expect a further increase in demand.
MNB recommends Revolut Bank to carry out its activities as a domestic subsidiary bank, with its headquarters in Hungary and sufficient capital, as an institution under the supervision of the Hungarian Central Bank, to protect its domestic customers. Despite the repeated initiatives of MNB, Revolut Bank has still not submitted an authorization request for its domestic subsidiary bank and continues to operate as a cross-border service provider. Therefore, domestic customers are still unable to settle their settlement disputes in Hungary and the Hungarian deposit insurance protection does not cover their deposits with Revolut Bank. MNB has also warned customers of the associated risks.
Keywords: Europe, Hungary, Banking, Lending, Credit Risk, Market Risk, Interest Rate Risk, Mortgage Loans, Revolut Bank, MNB
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