Lending capacity at Hungarian banks drops to crisis levels

By bne IntelliNews March 2, 2012

Tim Gosling in Prague -

Lending capacity at Hungarian banks has dropped to its lowest level since the financial crisis struck in September 2008 as a result of tighter and more expensive funding, the Hungarian central bank said in a survey published on March 1. The fall is a direct result of the government's hostile attitude toward the country's mostly western-owned banks.

"The deterioration in lending capacity was last reported by such a proportion of banks upon the outbreak of the September 2008 crisis," the Magyar Nemzeti Bank (MNB) said in the survey, reports Bloomberg. A net 70% of banks that responded said they expect funding conditions to worsen in the first half of 2012, and explained that they plan to tighten credit criteria for corporate loans further.

Whilst the western European banks that dominate so many CEE markets have been cutting lending across the region in response to the cost of financing as the debt crisis rattles on, they are also facing a severe challenge to raise Tier 1 capital ratios to 9% to meet EU regulations, with the deadline set for the end of June. That forces them to make tough decisions about which markets they should pull back in.

Hungary is making it easy for them. The government has imposed high crisis taxes on the sector and forced it to shoulder losses under legislation offering foreign exchange borrowers the chance to pay off loans early at forint exchange rates far below the market.

As the MNB survey points out, the Hungarian banking sector recorded its first loss in 13 years in 2011 on the back of these conditions, making "regional competition for external funding more difficult for the the unprofitable Hungarian banking industry."

"Despite a relatively low Euro-periphery bank ownership share Hungary is amongst the most exposed of the economies in Emerging Europe to European bank deleveraging due to high perceived policy risk," suggests Tim Ash at RBS. "The danger is that with banks being forced to make hard decisions about where they deploy capital they don't need an excuse to more aggressively deleverage in economies like Hungary where credit/policy risk and the growth outlook is weak."

"Interestingly, and to its great credit, the [Hungarian central bank] has been proactive in trying to kick start credit," he points out. "Equally important will be real efforts by the government to quickly close a new financing agreement with the EC/IMF; foreign banks will view this as casting a policy safety net around them with regard to "off-piste" policy initiatives by the government in the banking sector."

Related Articles

Drum rolls in the great disappearing act of Russia's banks

Jason Corcoran in Moscow - Russian banks are disappearing at the fastest rate ever as the country's deepening recession makes it easier for the central bank to expose money laundering, dodgy lending ... more

Kremlin: No evidence in Olympic doping allegations against Russia

bne IntelliNews - The Kremlin supported by national sports authorities has brushed aside "groundless" allegations of a mass doping scam involving Russian athletes after the World Anti-Doping Agency ... more

PROFILE: Day of reckoning comes for eccentric owner of Russian bank Uralsib

Jason Corcoran in Moscow - Revelations and mysticism may have been the stock-in-trade of Nikolai Tsvetkov’s management style, but ultimately they didn’t help him to hold on to his ... more

Register here to continue reading this article and 2 more for free or purchase 12 months full website access including the bne Magazine for just $119/year.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

To continue viewing our content you need to complete the registration process.

Please look for an email that was sent to with the subject line "Confirmation bne IntelliNews access". This email will have instructions on how to complete registration process. Please check in your "Junk" folder in case this communication was misdirected in your email system.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

If you have any questions please contact us at sales@intellinews.com

Subscribe to bne IntelliNews website and magazine

Subscribe to bne IntelliNews website and monthly magazine, the leading source of business, economic and financial news and commentary in emerging markets.

Your subscription includes:
  • Full access to the bne content daily news and features on the website
  • Newsletters direct to your mailbox
  • Print and digital subscription to the monthly bne magazine
  • Digital subscription to the weekly bne newspaper

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

bne IntelliNews
$119 per year

All prices are in US dollars net of applicable taxes.

If you have any questions please contact us at sales@intellinews.com

Register for free to read bne IntelliNews Magazine. You'll receive a free digital subscription.

Already a subscriber or registered - click here to recover access.

If you a IntelliNews Pro user - click here to login.

Thank you. Please complete your registration by confirming your email address.
A confirmation email has been sent to the email address you provided.

IntelliNews Pro offers daily news updates delivered to your inbox and in-depth data reports.
Get the emerging markets newswire that financial professionals trust.

"No day starts for my team without IntelliNews Pro" — UBS

Thank-you for requesting an IntelliNews Pro trial. Our team will be in contact with you shortly.

Dismiss