Budapest, 23 June 2021 – Last year, growth in many financial sectors fell short of recent years’; nevertheless, expansion continued without faltering in most markets. There was no outflow from households’ dedicated savings and investment savings despite of the uncertain economic environment caused by the pandemic. On the contrary, households accumulated further assets – says the MNB’s latest Report on Insurance, Funds, Capital Market and Intermediary Risks and Consumer Protection. From this year, markets may switch to a faster growth rate.
In 2020, Hungarian households’ gross assets (financial instruments and stock of dwellings) rose by 8.5 percent; due to the economic uncertainties caused by the pandemic. The most robust growth was seen in safe haven assets, i.e. deposits, cash and debt securities. There was no major outflow from households’ savings and investments. Growth slowed down in several sectors, but most of them continued to expand without faltering – says the Report on Insurance, Funds, Capital Market, Intermediary Risk and Consumer protection of the Magyar Nemzeti Bank (MNB).
The 4.7 percent increase in insurers’ premium income was roughly half of the dynamics in previous years. According to the central bank’s vision for the sector, convergence to the EU is conditional upon returning to an annual growth rate of 8-10 percent as soon as possible. Last year’s growth was once again driven by the non-life segment, and particularly by the compulsory motor third-party liability (MTPL) insurance (partly due to the effect of tax integrated in premiums). In the case of MTPL, the MNB took action against statistically unsubstantiated premium calculations (“excessive pricing”) in an executive circular.
In the life insurance segment, new acquisitions of pension insurances and travel insurances were hit the hardest by the pandemic. Regular premium income from unit-linked and classic life insurance products rose, as usual, while traditional, single premium schemes declined. The insurance sector was characterised by declining combined ratio and similarly high profitability as before due to fell of claim payments. The sector’s capitalisation level – partly due to the MNB’s executive circular, calling upon insurers to postpone dividend payments, issued repeatedly last October – is still more than twice as high as the regulatory requirement. Market participants also complied with the central bank’s executive circular that emphasised the importance of preserving client assets.
Voluntary funds’ assets and membership fee incomes grew to almost HUF 1,700 billion and HUF 152 billion in 2020. Individual and employer contributions both increased at voluntary pension funds. The ratio of members’ contributions at health and mutual funds improved. In 2020, pension funds realised an asset-weighted net yield of 4.1 percent and real yield of 1.4 percent at sector level. The long-term average real yields were even better, between 2-4 percent. After the losses registered at the beginning of the year, fund members heeded the MNB's warning, and they typically preserved their savings for the period when yields turned positive by the end of 2020.
At health and mutual funds the ratio of benefits related to children and housing continued to rise. Both sub-sectors registered a loss on average (primarily due to the rising costs and the decrease in the yields deductible from non-payer members); however, operating reserves provide sufficient coverage.
In the insurance intermediary market, non-life commissions rose, and this have offset the decline in life insurance commissions. As regards financial market intermediaries, the effect of the pandemic was mostly felt at the car financing loans. Corporate loans failed to grow, while the intermediation of retail credits and loans rose dynamically.
The stock managed by non-banking group financial enterprises stagnated last year, only the financial lease portfolio was able to grow. The growth in the volume of services rendered to enterprises continued in the lending and lease activity. Portfolio quality improved further, which – however – should be assessed in the light of the moratorium on loan instalments, which was overseen by the central bank with special care also in terms of consumer protection. Profitability of the sector, partly due to the moderate activity, declined compared to previous year. Growth in the workout portfolio halted, while the number of managed contracts increased.
Turnover of investment service providers rose dynamically, by 12.1 percent. The 19.2 percent growth in the turnover of the Budapest Stock Exchange was driven by the prompt market. Despite the falling prices, the portfolio of customer securities managed by investment service providers, measured at market value, rose by 2.1 percent. Accordingly, profitability of investment firms improved further: their 2020 after-tax profit reached a historic high across the sector, exceeding that of previous year by 29.5 percent. The sector’s capital adequacy ratio is excellent, standing at 21.9 percent.
After a growth of 4 percent, the assets managed by investment fund managers also reached a new record, despite the capital market turbulence in 2020. The growth was primarily attributable to the rise in the net asset value of the mutual funds, while the assets of the other portfolios (pension funds, insurers, etc.) also grew. Growth in mutual funds’ assets was primarily driven by investment yields last year as well, but net capital inflows also contributed to it. Profitability of the fund management sector declined, while its after-tax profit fell only moderately from last year’s historic high.
In the capital markets, the MNB performed thematic inspection of the suitability assessment under MiFID. Based on the experiences gained from the inspections and the ongoing supervision of subsequent information on costs, the central bank issued an executive circular to ensure that customers have access to timely and consistent information. The MNB extended the restrictions to curb CFD transactions, carrying extreme risks, also to cross-border service providers and banned the sale of binary options to retail customers
The central bank last year also took strict measures against market manipulation, insider trading and activities that mislead investors and the breach of the provisions of the Market Abuse Regulation (MAR). To this end, in autumn 2020 an information campaign was launched against unauthorised investment service providers. While due to the capital market turbulences several national supervisory authorities in the EU introduced temporary measures on short selling, in Hungary – due to the lower volatility of the domestic capital market – no additional restrictive measures were necessary apart from applying, until March this year, the amended reporting threshold applicable to short sale transactions ordered by the European Securities and Markets Authority.
Magyar Nemzeti Bank