Bank CEOs: not everyone will get a 5% mortgage, let the boring years come!

What will happen to the maximum 5% APR on a home loan?

Four weeks ago, the leaders of the Hungarian Banking Association met with the Minister of National Economy, Márton Nagy, when the government first raised the need for a voluntary application of the APR for home loans below 5%. From the banks' point of view,

this could be the case for young people's green home loans for their first home, at a price per m² of less than HUF 1 million, for homes of less than 50 m²,

said Radován Jelasity, president of the Hungarian Banking Association and CEO of Erste Bank. This year's near-record housing loan approvals show that the problem is not with loan demand and bank financing, but with the tight supply of real estate, and that a below-5% lending rate extended to the market as a whole would only push up property prices in such an environment.

How are corporate clients doing?

In recent years, companies have largely used up their own reserves and investments have declined, but OTP is in constant dialogue with its corporate clients and supports them, so there are no portfolio problems, said Péter Csányi, Deputy CEO of OTP Bank. Ádám Egerszegi, Deputy CEO of MBH Bank, explained that instead of worsening, their non-performing loan ratio has even decreased. The delinquency rate beyond 90 days is only 0.5% at CIB Bank, but the overall quality of corporate balance sheets is worse than in previous years, said Pál Simák, CEO of CIB Bank.

While residential lending is booming and could double this year, investment is severely lacking, many firms are holding off on borrowing, and the commercial real estate market is underperforming,

Radován Jelasity pointed out. György Zolnai, CEO of Raiffeisen Bank, also spoke about the decrease in order books and the shrinking of internal reserves, but there are no default problems with their corporate clients yet. The loan portfolio of larger companies is growing at a rate of almost 10%, while that of SMEs is stagnating, he noted.

Two-thirds of corporate clients do not plan to invest, half of the respondents do not see the need for it,

but only a few of them, about 10%, cite credit conditions as an obstacle, said Ádám Egerszegi. Project finance has not taken off in large volumes, but there are positive signs in some segments. However, the automotive supply environment is facing many challenges due to the external environment.

What is a yield environment of around 6% in the credit market good for?

Everybody is preparing their 2025 plans, CIB Bank is planning to grow between 5% and 10% in most loan segments, Pál Simák said. According to Péter Csányi, uncertainty has surrounded all aspects of financing since 2022, and a predictable environment is needed for growth. György Zolnai said that a yield environment of around 6% is much better than below 2% or above 10%, and that

the current yield environment is already sufficient to boost mortgage lending and to spark the imagination of those who are thinking about investing.

How long can the intensive buying of government bonds go on in order to halve the extra profit tax?

Under the government's July decision, the bank extra profit tax will remain in force in 2025 with no reduction in its nominal value, and the tax will be based on adjusted pre-tax profits in 2023. Next year, the period under review for the increase in government securities holdings required to halve the extra profit tax will be the first 11 months of 2025 compared to the first 11 months of 2024, so banks would have to keep increasing their holdings. According to Pál Simák,

it may become increasingly difficult to justify large-scale purchases of government securities to parent banks due to country and product limits. This may work next year, but less so later.

Radován Jelasity said that one cannot lend a lot and buy a lot of government bonds at the same time. According to Péter Csányi, from a liquidity management and investment point of view, banks would not need such a large portfolio of government bonds.

Transaction fee increase: how will banks and their customers react?

Péter Csányi called the transaction tax, which does not exist in other European countries, particularly harmful and said that it undermines the competitiveness of Hungarian banks. It was not by chance that the MNB again drew attention to the fact that Revolut should establish a subsidiary bank in Hungary, he added. The transaction tax is four times the bank tax, and after an increase it will be five to six times higher, said Radován Jelasity, noting interestingly that

the Hungarian Erste Bank is 3% the size of the Austrian Erste Group, but 17% the size of the Austrian Erste Group in terms of tax payments.

The big question is how customers will react to the additional transaction tax on conversions introduced on 1 October. Pál Simák says it is too early to assess.

Profitability of the banking sector may fall

Erste Bank is definitely expecting a decline in revenue and profitability because interest rates are falling, said Radován Jelasity. In agreement with György Zolnai, he said they are trying to contain costs, but there is little room for manoeuvre. OTP expects strong growth in retail lending and more moderate growth in corporate lending, according to Péter Csányi. He drew attention to the need for economies of scale, which he said there are still too many banks for the Hungarian population.

In the retail segment, MBH Bank has significantly increased its market share this year, while in corporate lending it is neck and neck with OTP,

said Ádám Egerszegi. If this momentum is maintained next year, he believes it will be a good performance. After the merger of the three banks, they are constantly looking at where they can cut costs in operations and IT, and are trying to squeeze the maximum out of this in the next period.

Savings: where will HUF 3 trillion of household money go?

According to György Zolnai, retail customers will be able to channel more of the interest income and maturity capital of retail government bonds (the two together could reach HUF 3,000 billion next year) to the banking sector and into asset management products and higher-risk instruments. A significant part of the HUF 3000 billion in principal and interest payments could therefore find its place in market instruments. The increase in asset management activity could also benefit fee income, according to Pál Simák, who said that more diversified portfolios are the way forward. Radován Jelasity estimated that

a third of the money that will flow out of government securities next year could go back into government securities, a third into other savings and a third could be spent by clients.

Ádám Egerszegi also expects a larger outflow from the government bond market through maturing government bonds than this year, which could also boost the economy.

What are the main operational and market risks banks face?

According to Péter Csányi, it seems that what politics can solve less well, it is passing on to the banking sector, such as part of the green transition. He sees no major problems in the labour market. Ádám Egerszegi says that the task of educating customers is a significant burden on banks, and it is not an easy task, just like cyber security, where more and more money has to be spent. According to Pál Simák, making banking attractive for the banking sector is also a big challenge, and there is also room for improvement in digitalisation. György Zolnai said that we need a "boring and well-functioning banking system," and that bank loans could remain the number one source of business finance in the next ten years, as banks have learned how to do this without making mistakes. "If they let us do our job, we can do it even better," concluded Radován Jelasity.

Cover photo: Portfolio