Domestic credit dynamics slowing down in line with international trends
Budapest, 13 September 2023 — Corporate loans to banks grew by 11 per cent, while retail loans grew by 3 per cent between 2022 Q3 and 2023 Q2. This slowed the pace of credit market expansion in line with international trends. Banks across Europe have experienced a decline in demand for long-term corporate loans. In the second quarter, the share of banks that saw a fall in demand for housing loans already declined, while almost all institutions experienced an increase in demand for consumer loans. According to the second quarter Lending Survey, banks did not make any broad changes on corporate and retail credit conditions, and in the second half of the year they only envisaged tightening standards for consumer loans. The new rules on home purchase subsidies, which will come into force from January 2024, will have a stimulate effect on demand for subsidised loans this year.
Credit institutions' outstanding loans to non-financial corporations increased by HUF 158 billion in the second quarter of 2023.Thus, in the year to June 2023, the stock of loans on a transaction basis expanded by 11 per cent, representing a substantial slowdown compared to the end of the previous year. While this corresponds to international trends, the growth is still the third highest value in an EU comparison. Annual credit growth slowed to 16 per cent in the large corporate segment and 10 per cent in the SME segment by the end of June. The volume of new lending in 2023 Q2 was broadly the same in year-on-year terms for the corporate segment as a whole, but was significantly lower for SME lending, where it dropped by 31 per cent, reflecting the high base effect of subsidised loans.The share of subsidised corporate loans rose from 37 per cent in the previous quarter to 46 per cent regarding newly signed non-overdraft contracts, partly due to the increase in new corporate loan incentive programmes available at favourable interest rates, such as the Széchenyi Card Programme MAX+ and the Baross Gábor Reindustrialisation Loan Programme. Overall, the average interest rate on market-based corporate loan contracts followed the decline in the interest rate environment during the quarter. The banks participating in the Lending Survey have not made any substantial changes to corporate lending conditions, and no substantial changes are expected for the second half of 2023 either. Banks also perceived rising demand for forint, foreign currency and short-term loans in the second quarter, while demand for long-term loans continued to fall as investment plans became more uncertain. Banks expect corporate loan demand to pick up in 2023 H2. According to the Bank Trends Survey, around one half of the credit institutions plan to increase their total corporate and SME loan portfolio in the second half of the year.
The retail loan portfolio of the credit institutions sector expanded by HUF 98 billion in the second quarter, as a result of disbursements and repayments. This represents an annual increase of 3 per cent in the loan portfolio. Behind the gradual slowdown in credit dynamics is a decline in new lending, with retail lending down 47 per cent in the second quarter, including a fall of 67 per cent in housing loans, compared to the volume from one year earlier. The volume of prenatal baby support loans, which was previously characterised by high loan disbursements, has also fallen significantly and may drop further from 2024 onwards as a result of the new regulation. Personal loan issuance declined only marginally in year-on-year terms, while home equity lending expanded significantly from its previous low level, driven mainly by investment motivations, based on the composition of borrowers and the characteristics of the loans granted. In 2023 Q2, banks extended market-based housing loans at an average interest rate of 8.8 per cent, and taking into account state interest subsidies, the average interest rate paid by customers in the overall housing loan market was 7.7 per cent in the period under review. In 2023 Q2, the volume of subsidies contracted under the Home Purchase Subsidy Scheme for Families decreased for the fourth quarter in a row, and by June the share of state-subsidised loans within newly disbursed housing loans fell from 35 per cent to 19 per cent in the course of one year. Next year’s announced tightening of the HPS will have a short-term stimulative effect on the volume of related housing loans with interest rate subsidy.
Based on responses to the Lending Survey, credit institutions left the terms of both home loans and consumer loans unchanged in 2023 Q2. Looking ahead to the second half of the year, however, a net 11 per cent of banks foresee tightening in the case of the latter, while an even higher proportion may tighten conditions for home equity loans. Over the quarter, responding institutions saw an overall decline in demand for housing loans, while almost all banks saw a pick-up in demand for consumer loans. Nevertheless, more than half of banks expect demand in the housing loans market to pick up by the second half of the year, while only a small number of banks have similar expectations for consumer loans. According to the Bank Sentiment Survey, around one quarter of credit institutions would like to continue to increase their loan portfolios in both unsecured consumer loans and mortgage loans, but a small proportion of institutions in both segments have set their sights on reducing their portfolios.
The objective of the publication ‘Trends in Lending’ 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:
Detailed results and the figures of the Bank Sentiment Survey are available on the MNB’s website at the following link: