Prenatal baby support loans contribute to robust credit outflow in 2019 Q3Print
The stock of loans to the corporate sector and SMEs rose by 16 per cent and 15 per cent, respectively, in year-on-year terms in 2019 Q3, reflecting robust, broad-based expansion in lending. Household loans increased sharply, rising by 14 per cent, in the last 12 months relative to previous quarters, largely due to strong demand for the prenatal baby support loans introduced under the Family Protection Action Plan. In accordance with housing market developments, average maturity and contract size are on the rise in the household segment, with almost exclusively fixed-rate loan distribution. Taking account of the low degree of credit penetration and the current structure of credit expansion, private sector lending cannot be considered overheated, but trends in lending and the pick-up in prenatal baby support loans warrant close monitoring.
The domestic corporate segment is still characterised by robust growth in loans outstanding: in 2019 Q3, the annual growth rate of corporate loans was 16 per cent, and preliminary data suggest that there was an expansion of nearly 15 per cent in the SME sector. Overall, annual growth in transactions amounted to over HUF 1,100 billion. Growth was broad-based both by banks and sectors: based on transactions last year, the loans outstanding of the manufacturing sector rose most significantly, followed by the real estate sector.
The annual volume of new corporate loan contracts equalled the previous year. Regarding the structure, longer-term contracts with a maturity of over 3 years accounted for 60 per cent of the total volume of contracts in 2019 Q3. Since the FGS fix was launched in January, the share of fixed-rate loans within lending over 5-year maturity rose to over 50 per cent, indicating a reduction in interest rate risk on the stock of new lending.
According to banks’ responses to the lending survey, credit conditions remained broadly unchanged in the corporate segment in 2019 Q3, with most of the banks looking to expand their loan portfolios. Lending standards were not modified for large and small enterprises, but the banks reported tightening measures for commercial real estate loans in all sub-segments, and looking ahead they plan further tightening for the shopping centre and office segments. Credit institutions reported strong demand primarily in the market of long-term and forint loans and expect similar trends in the near future. Lending conditions eased slightly in the euro area in 2019 Q3. This affected collateral requirements, despite the fact that the share of covenant-like loans in the euro area has risen in recent years.
Household loans outstanding rose sharply in 2019 Q3 by HUF 484 billion due to transactions, which resulted in an annual increase of nearly 14 per cent. This is the highest figure among the EU Member States, but nevertheless household credit penetration remains among the lowest in the EU. The strong increase was largely driven by unsecured, high-amount prenatal baby support loans, capped at HUF 10 million, which were introduced in July 2019 under the Family Protection Action Plan. The rise in the stock of lombard loans collateralised by securities was also remarkable (HUF 98 billion), but this development is expected to be only temporary.
Credit institutions concluded contracts with households in a total value of HUF 800 billion in 2019 Q3, resulting in a 41-per cent increase annually. Prenatal baby support loans accounted for most of new lending in the third quarter (HUF 277 billion). The volume of new housing loan contracts rose by 8 per cent on an annual average in 2019 Q3 and that of personal loans increased by 29 per cent. On the whole, the additional effect of the baby support loans exceeds their crowding-out effect for the time being; however, additionality is expected to decline over the time horizon of the programme. Households’ credit demand is also supported by the low interest rate environment and rising wages in addition to the measures taken under the Family Protection Action Plan (Home Purchase Subsidy – HPS, HPS targeting rural areas, prenatal baby support). Nevertheless, the pick-up in demand has not been accompanied by an easing of credit conditions in the household segment, according to the responding banks. Although several banks perceived a decline in demand for housing loans in 2019 Q3, looking ahead they expect competition and demand to become stronger in both the housing and consumption lending segments.
In line with housing market developments, average maturity and contract size rose for housing loans: from January 2017 to September 2019, the average maturity of loans for new and used homes increased by 1.8 years and 2.9 years, respectively, and average credit sizes rose by HUF 4.5 million and HUF 3.3 million. However, new borrowing has been associated with increasingly predictable monthly instalments: in 2019 Q3, loans with interest rate fixation until maturity accounted for about one-quarter of the volume of new housing loans, and loans with 10-year interest rate fixation periods represented close to 50 per cent. The share of Certified Consumer-Friendly Housing loans was 64 per cent.
Taking account of the low degree of credit penetration and the sound structure of the current credit expansion, private sector lending cannot be considered overheated in any market segment; however, the strong demand for prenatal baby support loans warrants close monitoring of market developments related to the product.
The MNB will publish the next Trends in Lending report in February 2020. The objective of the publication is to present a detailed picture of the latest trends in lending and to facilitate the appropriate interpretation of these developments. To this end, the report elaborates on the developments in credit aggregates, demand for loans perceived by banks and credit conditions, based on the Lending Survey, and the balance sheet and interest rate statistics of the banking system. Detailed results and the figures of the Lending Survey are available on the MNB’s website at the following link: