Banks remain risk averse – they maintain lending only to the most creditworthy customers

Budapest, 11 February 2010 - The Magyar Nemzeti Bank (the central bank of Hungary) published the results of its latest lending survey. The survey, conducted in January, suggests that banks have had strong ability and adequate liquidity position to lend. However, their risk-taking inclination has been yet low, leading to reduced credit availability particularly to the corporate sector. In addition to supply-side factors, the weak demand for loans has been continuing to be an important factor in the decline of loan volume.

The Magyar Nemzeti Bank launched it questionnaire-based survey in the spring of 2003 with the objective of gaining a deeper insight into Hungarian commercial banks’ lending practices. The survey, conducted on a quarterly basis, presents senior loan officers’ assessment over the loan market. The latest published survey is based on questionnaires returned by lenders in early 2010, and presents their answers to retrospective questions relating to 2009 Q4 and as well as to forward-looking questions asking for their expectations for the next six months.

The survey indicates that banks’ ability to lend is strong, i.e. liquidity and capital positions are adequate; however, their risk appetite has continued to be low, which, in turn,  has constrained customers’ access to credit.

Credit conditions on consumer loans and corporate loans were reported to have tightened further; however, the net proportion of tightening banks decreased. These developments were consistent with the findings of latest lending surveys of other central banks. Banks have mainly tightened non-pricing conditions (e.g. collateral requirements and credit scoring criteria). The strict level of credit conditions was expected to be maintained over the next half year as well. The competition increases for the most creditworthy customers. The short demand for investment loans continued to play an important role in the decline in lending to companies, in addition to supply-side factors.

Developments in mortgage lending to households contrasted with this. Banks have eased credit conditions, reflected mainly in pricing conditions (interest rate) and related mainly to new HUF-denominated loans. In the future, banks expect increasing credit availability in this segment; however, along with decreasing interest rates, they intend to maintain the strict level of non-pricing conditions.

In 2009 Q4, the dynamics of portfolio quality deterioration in the household segment slowed down, to which loan restructuring contributed significantly. In order to restore clients’ ability to pay banks have extended loan maturities and made significant temporary (mostly for periods of 6–12 months) reductions in debt-servicing burdens. Banks restructured nearly 2–5 per cent of their loan portfolios in 2009. Up to the end of the year, 80%–90% of these customers could avoid falling into delinquency again.

The full survey is accessible on the MNB’s website in the ‘Financial Stability’ section under ‘Lending Survey’ (