Hungary interest subsidy scheme helps boost home lending - survey

Highlights of the NBH survey are the following:

- In the case of housing loans the launch of state interest rate subsidies scheme will result in a total APR (annual percentage rate charged) of 9% during the early stage of the scheme, instead of the maximum 13% APR.
- The drop in the cost of funds can invigorate demand and so banks can become more active on the market, which could bring about a palpable, albeit not considerable growth in new lending;
- Corporate credit conditions tightened further in Q2;
- Lending capacity has been playing a declining role in the tightening of credit conditions; the outflow of foreing funds has decelerated;
- Low willingness to lend had a stronger contribution again, mainly due to the unfavourable macroeconomic environment.

Lending to households

In line with the expectations reported in the previous survey, a net 25% of banks reported that they had eased their credit conditions for housing loans, which was mainly reflected in the higher payment-to-income (PTI) ratio and loan-to-value (LTV) ratio as well as the lower interest rate spreads.

Although lending will not be boosted significantly by the state’s interest rate subsidies scheme, demand will increase palably, NBH chief analyst Dániel Homolya told a press conference today. At the same time, for the second half of 2012 banks only expected further adjustment in consumer loans, noted Gergely Fábián, the author of the report.

Supply for housing and consumer loans have both growth in Q2, but the banks expect further increase only in the latter in H2. As for housing loans, the volume of loans may grow primarily if demand rises. Demand for both types of loans diminished recently, but the banks expect growth in the second half of the year.

A net 7.5% of banks reported that they had eased the credit conditions of consumer loans, and 22% of them planned further easing in 2012 H2. Similarly to the previous survey, a net 20% of banks reported that they had perceived a decline in demand for consumer loans. In the case of housing loans a net 20% of banks reported that they had perceived lower demand, which is significantly lower than the 50% reported in the previous survey. However, a net 76% of banks expected an upswing in demand in the household segment over the next half year. In the case of housing loans, these expectations may be attributable to the launch of the state interest rate subsidy programme, resulting in a gradually declining interest rate subsidy for the debtor for five years.

Further tightening of corporate credit conditions

Both price and non-price conditions tightened in corporate lending and the banks forecasted further tightening for H2.

Respondents cited economic prospects and industry-specific problems as factors contributing to tightening. The role of the weakening lending capacity declined compared to the previous quarter. Moreover, in the case of a net 16% of banks the liquidity situation points to an easing of credit conditions.

As for the demand perceived by the banks, the trend observed in the last several quarters continued: in the latest survey, compared to the previous quarter, demand for short-term loans was reported to have increased, while demand for longterm loans was reported to have declined in the case of a net 30% of banks.

Looking ahead, a net 22% of banks expected a further increase in the demand for short-term loans, whereas respondents did not expect any change in long-term loans in the next half year compared to Q2.

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• MNB,
• economy,
• lending,
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• corporate,
• household