22 February 2024
In January 2024, the MNB again conducted its Banking Sentiment Survey. Based on the responses, the banking system experienced a slight deterioration in economic sentiment in 2023 H2. The respondents also cited the increase in operating costs, the international macroeconomic environment, customer risks, credit demand, and developments in the regulatory environment as having a negative effect. This was partially offset by an increase in market competition, the domestic macroeconomic environment and access to funds. Banks expect an improvement in economic sentiment in terms of competition, the domestic and international macroeconomic environment, credit demand and the availability of funds over the next six months. As a result, the value of the index may turn positive again for the first time since the end of 2021.
Based on the Bank Sentiment Index[1] calculated from the difference between the banks experiencing an improving or deteriorating economic situation in January 2024, only 8 per cent of the respondents indicated that they perceived a deterioration in their operating environment in 2023 H2. Looking ahead to 2024 H1, a net 7 per cent of banks already expect an improvement in economic sentiment, which was last seen at the end of 2021.
Factors determining developments in economic sentiment:
- In 2023 H2, perceptions of the domestic macroeconomic environment again contributed positively to banks’ economic sentiment, which was last seen in mid-2021. Perceptions of the international environment still pointed to a deterioration in economic sentiment, but to a much smaller degree than in previous periods. Thus the economic environment had an overall neutral effect in 2023 H2. Looking ahead, half of the banks believe that this factor can have a positive effect, which can be supported by prospects at home and abroad.
- The increase in competition continues to have a positive effect on economic sentiment. Banks reported competition in the household and corporate credit markets as well as in payment services and against non-bank market participants to have intensified, and this trend looks set to continue in the future.
- Perceptions of access to funds improved and had a slightly positive effect on assessments of the banking situation. Access to short-term funds improved again after two years, and this trend may continue in 2024 H1. There was no change in the availability of long-term funds, but looking ahead, a net 11 per cent of banks expect an improvement in this regard.
- An increasingly narrow range of banks have perceived an increase in customer risks since the payment moratorium was lifted at the end of 2022. Credit risks did not result in a deterioration in portfolio quality due to the stable labour market, the borrower-based measures and high corporate liquidity. However, nearly one-fifth of banks experienced a deterioration in their creditworthiness in both the household and corporate segments, although this ratio was the lowest over the past year and a half. Banks’ risk appetite fell slightly in 2023 H2, and a similar decrease is expected in 2024 H1.
- Banks have perceived a further decline in loan demand in the past six months, but looking ahead, they already expect a recovery. A net 24 per cent and 16 per cent of the banks, respectively, indicated a fall in corporate and household demand for credit. In the next six months, one-third of the institutions expect a pick-up in demand in the household segment and one-fifth in the corporate sector.
- The tightening of the regulatory environment was indicated by a net 27 per cent of the banks in relation to the past six months and the next six months as well. This may be related to the effect of the interest caps and ceilings announced and extended during the period, as well as to the capital requirements that will be tightened during 2024.
- Despite the exceptionally strong results at sector level, only a net 8 per cent of the banks indicated an improvement in profitability before impairment, with nearly 60 per cent perceiving an increase in operating costs. In 2023 H2, bank profitability was negatively affected by the normalisation of the interest rate environment, the voluntary APR cap introduced in October, and weak loan demand. In the next six months, a net 27 per cent of banks expect a deterioration in profitability, to which the settlement of the 2024 extra profit tax, the extension of the interest rate cap, the voluntary APR ceiling, the reduction in interest rate spreads on corporate loans, and the potential decline in the general interest rate level may also contribute.
Changes in the Bank Sentiment Index by bank size
Note: The Bank Sentiment Index is the arithmetic average of seven components (economic environment, market competition, availability of funds, customer risk, demand, regulation, profitability). The last data point is an estimation. Source: MNB Bank Sentiment Survey.
During the Banking Business Survey, the net ratio is obtained by dividing the difference between the number of banks reporting an improvement and banks reporting a deterioration in response to the given question by the number of responding institutions. The answers are not weighted by the market share of individual institutions.
Detailed results and the figures of the Bank Sentiment Survey are available on the MNB’s website at the following link:
https://www.mnb.hu/en/financial-stability/publications/bank-sentiment-survey
[1] The Bank Sentiment Index is made up of seven components: economic environment, market competition, availability of funds, customer risk, demand, regulation, profitability. The Bank Sentiment Index is given as the arithmetic mean of the ratio of the difference in responses to each component (improvement and deterioration) in relation to the entire scope of observation.