We haven't seen this since the financial crisis, Hungary brushed by credit crisis

Loans and deposits in 2023: multi-year lows

The number of transactions in the housing market has not been this low since 2013. House prices also fell for the first time in ten years last year. In real terms, house prices have fallen in a single year as much as they did in three years after the 2008 crash.

Interest rates on housing loans have climbed to the same level as in 2012, so it is no wonder that housing loan disbursements fell by 50% to HUF 595 billion. Meanwhile, the disbursement of other retail loans fell by "only" 12%, so that overall the new contracted amount of the household loan market showed 31% year-on-year contraction. The nominal contracted amount of housing credit borrowing fell to a seven-year low, while the volume of total household credit fell to a five-year low.

In the case of companies, net borrowing, i.e. the balance of borrowing and repayments, is a more realistic indicator of market activity. In 2022, companies borrowed HUF 1,613 billion more than they repaid, breaking all previous records, while in 2023 the figure was only HUF 719 billion, a low not seen since 2017.

In the case of forint loans, the corporate sector was a net borrower, despite the fact that state loan programmes were largely forint-based (the Széchenyi Card coordinated by KAVOSZ and the Baross Gábor loan programme financed by EXIM amounted to around HUF 1,700 billion and HUF 1,000 billion respectively, the latter also available in euro). In addition to these loan programmes, foreign currency loans with lower interest rates saved the market from a corporate credit crisis.

Due to the fall in new lending, bank lending to households grew by only 2.3% in 2023, while corporate lending ended the year with a slightly higher increase of 4.0%. Meanwhile, the evolution of deposits is noteworthy: as a result of a shift in savings (mainly towards government securities and investment funds), total household deposits fell by 5.5% last year, while corporate deposits grew by 5.4% (also thanks to the avoidance of the credit crunch, as lending also affects deposits). Except for corporate deposits, all changes in the stock of deposits look worse than in previous years.

Even so, households' liabilities to banks exceeded HUF 10 trillion for the first time in 2023, while companies are flush with liquidity: their deposits have risen to over HUF 16 trillion. The slight increase in business portfolios had a moderately positive impact on banks' net income, while the significant widening of net interest margins resulted in credit institutions closing the first three quarters with profits well above HUF 1,000 billion. The exact (preliminary) full-year 2023 results of credit institutions are expected to be published by the MNB on 5 March.

End-year brings upswing

Fortunately, the last months of 2023 have already produced much better figures than the annual average. In December, households took out 54% more home loans and 56% more personal loans than a year earlier.

The volume of new baby loans slumped 44% from the high base a year earlier (when young marrieds feared a complete phase-out), despite demand being bolstered ahead of the January tightening, and other loan products tended to decline, so that overall household lending in December was still stagnant compared to a year earlier.

Last year saw 53,000 new home loan contracts, 245,000 new personal loan contracts and 27,000 new baby loan contracts. The end of the year was outstanding not so much in terms of the number of loans but rather in terms of the average loan amount, with the average loan amount for housing loans reaching HUF 13.2 million, which was last seen in June 2022.

It's worth taking a look at the long-term chart below, which puts the fall in the retail credit market last year into historical context. The multi-year trough is clearly visible.

In mortgage lending, the APR cap introduced in October was already well underway in December, which has pushed interest rates on most market-rate housing loans down to between 7-8% by the end of the year and 6-7% by the beginning of this year. In December, the average interest rate for borrowers on market-based mortgages was 7.35%, compared to 8.44% a year earlier.

As regards personal loans, the other driver of non-subsidised lending, we do not see such a fall in borrowing costs: households borrowed at an average rate of around 19% for most of last year, and the average was 18.9% in December. The same can be said for home equities, but at an interest rate level of around 10%.

On the retail side, deposits fared particularly strongly in December, even stronger than the usual year-end surge. Net deposit inflows have not been this massive in recent years, apart from February 2022, the month of major pre-election profligacy. The exact reasons for this are not yet known, but in addition to the usual employer and owner payouts, a reduction in the returns available on other savings and investments (e.g. government securities) may also play a role, which could have a positive impact on deposit holdings in 2024.

This may be despite the fact that the majority of deposits still do not provide a meaningful return, and 82% of retail deposits are uncommitted. The average interest rate paid on term deposits of households fell to 1.77% from 2.10% a year earlier.

The end of the year was also stronger for corporates than the year as a whole, with net borrowing by corporates amounting to HUF 141 billion in December.

While the average interest rate on corporate euro loans was around 6% in December, forint rates were still well above 10%. The self-limiting measures taken by banks from 1 February will make a significant difference: a change has just come into force, reducing the interest rate spread over BUBOR to 0% for corporate loans to be taken out by 30 April for the first six months of the term.

Cover photo: Getty Images