Bad debts abound, but profits jump at Hungarian banks

According to the latest PSZÁF data, credit institutions operating as joint stock companies posted HUF 79.4 bn after-tax profit in the April-June period, up considerably from HUF 15.4 bn in the base period and also more than in Q1 2011 (HUF 61.5 bn).

The banks accounted as other expense HUF 30.5 bn due to the special levy on financial institutions. Without the bank tax (at a 13% tax wedge) the after-tax profit would have come in HUF 27 billion higher, i.e. at HUF 106 billion. There have been only three quarters when the financial institutions posted better results, in Q1 of 2007 and 2010 and the third quarter of 2008.

If we take a look at the reasons behind the improvement in the profit compared to the base period we find the largest jump in the net profit on financial and investment services and dividend rows. The result was further improved by provisioning that was about one third smaller than in the base period.

The still extremely low lending activity and the shrinking interest rage margin, however, caused a massive 8.9% yr/yr decline in net interest income that did not reach HUF 215 bn. In nominal terms though this is a high figure, the third-largest NII ever.

Within the banks’ net income,the ratio of net fee and commission income grew to 22.84% in Q2 from 19.35% in the first three months, but it would be too early to say that they are making a spectacular turn towards funding sources that are not related to lending. The process is rather gradual.

Taking at look at the cost-efficiency of the credit institutions we find that operating expenses reached 50.1% of net interest and net fee and commission incomes in April-June, down by almost a full percentage point from Q1,but higher than the base period’s 47.5%, which means cost efficiency has worsened in annual terms.

It is also an unfavourable development that following low provisioning in the first quarter there was once again a jump in the banks provisions, which could be related to the further rise in the DPD90+ ratio. But the HUF 97.4 billion provisions generated in Q2 are still 32.5% smaller than in the same quarter of 2010. The high base was the consequence of the corporate (and foreign) loan portfolio of a few large banks. The credit institutions speaking to Portfolio.hu said a similarly high number should not be expected in the remainder of the year, but larger corporate loan deals regarded as “skeletons" may still be in the closet, as the jump in the DPD90+ ratio to 13.6% from 10.9% demonstrates.

The rise in the NPL ratio in the banks’ retail portfolio was smaller but the DPD90+ ratio went up here too to 11.6% from 10.4%. The ratio of renegotiated loans also ticked up to 10.3% from 9.3%. The ratio of debt overdue by less than 90 days eased to 16.3% from 16.4%, but the aforementioned indicate that the ratio of bad retail loans is up at 38.2% from 36.2%.

While the banks’ capital adequacy ratios remain great (CAR 13.77% at end-June vs. 12.56% a year earlier, while the minimum is 8%) lending activity remains very low. Besides the banks’ risk aversion this is mainly attributable to subdued credit demand. The good CAR print was also helped by the relative decrease in the risk-weighted asset value. While the median exchange rate of the Swiss franc grew to219.90 from 216.7 in a year (which automatically increases the loan stock), the value of the banks’ corporate and retail loans dropped by 11% and 6%, respectively. Despite the economic hardships though the volume of retail loans was virtually flat while corporate deposits shrank 2%.

• Tags:
• economy