Hungarian banks profitability remained extremely high in the first half of 2017, although this is still due mainly to unsustainable, one-off items, the National Bank of Hungary (MNB) said in its biannual Financial Stability Report.
Their level of profitability is similar to the months immediately preceding the 2008 financial crisis, MNB said. Lending in every segment rose rapidly on the back of rapid economic growth, market-based lending to SMEs grew after the phase-out of the central bank’s preferential Funding for Growth Scheme (FGS).
Overall corporate lending growth picked up to 5-10pc annually to grow at the earlier rate experienced by SMEs. New disbursement of household loans continued to rise rapidly with a slight easing of credit conditions. While housing demand is robust, the average housing prices remain well below equilibrium level nationwide and do not markedly deviate from this level in the capital, MNB estimates.
The shock resilience of the sector has improved significantly, thanks to the ongoing cleaning of banks’ portfolios of non-performing loans. The initial capital adequacy of the institutions is solid, and loan loss provisions would not increase significantly even in a stress scenario. The cleaning of balance sheets has not resulted any significant losses in the sector. It “will help to improve banks’ lending activity over the long term, while the social implications of debt settlement should be followed with increased attention”.
The medium and long term profitability of the sector can mainly be ensured by boosting lending activity, expanding the range of services and increasing cost efficiency, the report said noting that the latter can be achieved by intensifying the utilisation of digital technologies, something MNB as regulator is committed to support.
Since the crisis, banks have mainly compensated for the decline in net interest income by reducing operating expenses, the report said. It noted, however, that the largest banks made relatively less adjustment on these expenses, and that their income to assets ratio still increased compared to the pre-crisis levels.
via hungarymatters.hu and mnb.hu