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Trends in lending, August 2016

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In 2016 Q2, SME loans from credit institutions increased on a transactional basis by 5 per cent in an annual comparison, with the second and third stages of the Funding for Growth Scheme contributing substantially to this. With this, SME lending is situated at the bottom of the 5 to 10 per cent growth band considered sustainable by the MNB. Loans extended in the third stage of the programme contributed by approximately HUF 54 billion to transactions during the quarter. Overall, the annual growth rate of corporate lending as a whole took a positive turn from its earlier low level caused by individual factors, and consequently the portfolio expanded by 0.3 per cent on an annual basis by the end of June, which would be equal to 1.9 per cent annual growth after eliminating the effect of portfolio separation at the end of the year. At the same time, repayments exceeded disbursements by HUF 51 billion in the period under review.

According to banks’ responses to the Lending Survey, similarly to international trends, credit conditions for companies continued to ease during the quarter, which was partly caused by stronger competition, partly due to the favourable economic prospects and the Market-based Lending Scheme. Similarly to the previous quarter, easing was primarily seen in the relaxation of the price conditions. Conditions of availability of commercial real estate loans were also eased, which was explained by the mitigation of the problems affecting the industry and the improvement in banks’ risk tolerance. The banks registered a rise in demand for long-term loans in particular during the quarter, which they expect to continue for the next six months as well, owing to the financing needs of new investments by their customers. The average financing cost of forint small-amount loans decreased somewhat, primarily taken out by SMEs.

The volume of new household loan contracts increased by 38 per cent in an annual comparison; within this, the disbursement of housing loans and personal loans rose to the greatest extent, as the volume increased by 46 per cent and 47 per cent on average annually, respectively. The loan portfolio contracted by 4.2 per cent last year, and households were still net debt repayers during the quarter. At the same time, disbursements already exceeded repayments in June. Based on banks’ responses to the Lending Survey, credit supply conditions eased both in the housing and consumer segment in Q2. The annual percentage rate of interest on new housing loans remained unchanged, while interest rate spreads increased slightly during the quarter, which can be explained by lending to riskier customers. According to the survey, the respondent banks registered further expansion in demand for loans, especially for housing loans, as unanimously indicated by the participating institutions. The latter was also supported by the Home Purchase Subsidy scheme, under which loan contracts were signed in an amount of HUF 21.5 billion. Three-quarters of these were requested for the purchase of used homes by customers. In the light of current experiences, it would be worth to review the program details to see how the rules could be modified in order to increase the weight of new homes.

 

Based on the Financial Conditions Index, which summarises lending developments in the corporate and household segments, the banking sector had a moderately negative impact on the annual growth of the real economy through its lending activity.