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Trends in lending, May 2016

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In 2016 Q1, outstanding lending to non-financial corporations by credit institutions increased by HUF 94 billion, with the utilisation of previously signed credit line agreements also contributing significantly. Lending to SMEs, which best reflects the underlying developments, increased by 3.4 per cent over the past four quarters, while the rate of decline in the total corporate loan portfolio fell to 2.4 per cent at end-March. Disbursements of loans signed in the second and third phases of the Funding for Growth Scheme contributed to the expansion of transactions by a total amount of roughly HUF 27 billion in 2016 Q1.

Based on banks’ responses to the Lending Survey, corporate lending conditions were eased, with market share objectives and the change in risk tolerance mentioned as contributing factors, along with the improvement in economic prospects. The easing was reflected in price conditions. These developments support the earlier assumption that the reduction in the bank levy in 2016 and the introduction of the interest rate swap conditional on lending activity (LIRS) may substantially facilitate the easing of lending conditions. The banks participating in the survey tended to perceive an increase in demand for short-term loans in Q1, but looking further ahead most of them also expect an upturn in demand for long-term loans. The average funding cost of forint loans continued to decline in the period under review, albeit this was mainly due to a significant decrease in the spread on large loans. As a result, the average spread on loans extended in HUF reached an extremely low level in Hungary, both in a historical and international comparison.

The volume of new household loan contracts increased by 24 per cent in year-on-year terms, but the household loan portfolio contracted by approximately HUF 71 billion as a result of disbursements and repayments in 2016 Q1, leading to an overall 5.4 per cent year-on-year decline in the portfolio. Based on banks’ responses to the Lending Survey, credit supply conditions remained unchanged both in the housing and consumer segments in Q1. While the survey indicated that demand for housing loans at the beginning of the year fell short of the earlier expectations, all of the institutions expect demand to pick up going forward. The annual percentage rate and the interest rate spread on new housing loans remained unchanged for both fixed-rate and variable-rate loans.

The home purchase subsidy scheme may play a significant role in households’ borrowing, as half of those interested plan to borrow on preferential terms. Initially, the scheme will mainly be utilised by people who already have a large family.

Based on the Financial Conditions Index, which summarises lending developments in the corporate and household segments, through its lending activity the banking sector exerted an approximately neutral impact on the annual growth of the real economy.