Júlia Király, Deputy Governor of the Bank, told a conference today that the profitability of the domestic banking sector and hence its competitive position in Central and Eastern Europe have deteriorated significantly in recent months, and the continued shortening in the average maturity of bank funding is likely to weaken banks’ liquidity position in the longer run. She cited business uncertainty as being the most important factor adding to the risks facing the banking sector, with economic agents adopting a more cautious approach towards investing for the longer term. Although there has been some improvement in this regard since the announcement of the Government’s fiscal programme, the unusually high bank levy and the moratorium on foreclosures and evictions, introduced as a social policy initiative, have clearly led to heightened macroprudential risks. All this increased the fragility of the recovery through a decline the willingness of banks to lend.

Ms Király noted that that although there is no ‘single ideal way of addressing all problems’, the Bank’s proposals for regulatory changes, including the introduction of a transparent formula for loan interest, the development of a ‘positive’ debt registry and preventing a further shortening in the average maturity of bank funding, if they are implemented, would lead to a reduction in risks and contribute to an economic recovery supported by a stable financial intermediary system.

The Deputy Governor said that a removal of the moratorium would also contribute to a reduction in macroprudential risks in the longer term, and although such a move is not without danger given the large stock of banks’ non-performing loans, those risks are manageable. ‘For this purpose, we propose to introduce portfolio cleaning quotas‘, the Deputy Governor added. She said that this would not only alleviate the strains in the housing market but would also help resolve social problems.