The Hungarian banking sector remains highly resilient to external shocks, but weak lending and the high stock of non-performing loans continue to pose risks, the central bank said in a report published on November 23.
The vulnerability of the Hungarian financial sector declined considerably over the past few years thanks to a number of measures, including the settlement of mortgage loans and their conversion into forints. For the first time since the onset of the global financial crisis, all banks meet the regulatory capital requirement even under a stress scenario, the Magyar Nemzeti Bank (MNB) said in its financial stability report.
The MNB’s Funding for Growth scheme has effectively stabilised lending to non-financial corporates, it adds, but market based lending remains remarkably subdued. The dynamics of corporate lending is insufficient to maintain sustainable economic growth and the banking sector is still a negative contributor to GDP growth.
That, according to the NBH's findings, is essentially due to decreased willingness to lend. The main challenge over the next couple of years will be, then, to restore commercial lending, to manage the high non-performing loan portfolio, and to improve profitability.
One of MNB’s main tools in that respect will be the launch of the Growth Supporting Programme (GSP) aimed at encouraging banks to boost lending to support the slowing economy. The planned launch of the Hungarian Restructuring and Receivables Management Agency (MARK), meanwhile, should help lower the NPL ratio from the current 15% to just over 5% by 2017, according to MNB estimates.
Improving cost efficiency could help boost profitability, which although improving over the next two years could still remain low by international standards, MNB warns.
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