Economy 20 May 2025, 3:15pm

Hungarian banking system perceives slight deterioration in economic environment

Portfolio

The Hungarian banking system perceived a slight deterioration in the economic environment at the end of 2024 and at the beginning of 2025, according to the findings of the central bank's (MNB) quarterly Bank Sentiment Survey conducted in April this year.

In April 2025, the MNB conducted its quarterly Bank Sentiment Survey. Based on the responses,

the banking system perceived a slight deterioration in the economic environment at the end of 2024 and at the beginning of 2025,

the MNB said in a press release on Tuesday.

According to banks, the increase in operating expenses, the uncertainty about the international and domestic economic environment, the tightening of the regulatory environment, the deterioration in corporate creditworthiness and the decrease in profitability made a negative contribution to their perception of the operating environment. By contrast, the increase in household credit demand and in competition had a positive effect.

Looking ahead to 2025 Q2 and Q3, banks expect the economic situation to deteriorate slightly further.

Factors determining developments in economic sentiment:

According to the banks, the economic environment has deteriorated significantly compared to the previous wave of the survey. In the last quarter of 2024 and the first quarter of 2025, two-thirds of the responding institutions perceived a deterioration in the international macroeconomic environment, and a net 43% in the domestic macroeconomic environment. Looking ahead, they expect a smaller but further deterioration in the second and third quarters of 2025.
Market competition has intensified, and continues to have a positive impact on the economic sentiment. Banks perceived the increase in competition primarily against non-bank market participants (net 38%), but in the field of payment services, as well as in the retail and corporate segments, a quarter to a fifth of institutions reported more intense market competition. Looking ahead, a net 30-40% of banks expect an increase in each segment, in which the recovery in the housing market, the Subsidised Loans for Workers and the Demján Sándor Programme may also play a role.
According to banks, access to funds has not changed significantly in the past six months. Looking ahead, 11% expect access to short-term funds to improve, but a net 8% projected a narrowing of long-term funds and interbank liquidity with the maturity of long-term central bank secured loans.
Credit risks have not materialised due to a stable labour market, debt cap rules, and high corporate liquidity, and as a result, the contribution of portfolio quality to bank sentiment was neutral. The creditworthiness of retail customers has not changed significantly, but in the corporate segment, a net 24% of banks experienced a deterioration in creditworthiness at the end of 2024 and the beginning of 2025, and they expect a further deterioration to the same extent. This may lead to a slight deterioration in portfolio quality in 2025, according to the sector.
Half of the banks saw a pick-up in retail credit demand in the last quarter of 2024 and the first quarter of 2025, while demand for corporate loans remained unchanged. Looking ahead, the responding institutions expect a pick-up in credit demand in the next six months to a lesser extent (30-35%) than previously.
30% of banks reported a tightening of the regulatory environment, and 35% expect this to continue in the next six months. This can be explained by the tightened extra profit tax, the mortgage interest rate cap, and the amended Capital Requirements Regulation (CRR3).
A net 22% of banks reported a deterioration in profitability before impairment, while two-thirds reported an increase in operating costs. Looking ahead, a net 43% of banks expect a decline in profitability, while half expect an increase in operating costs.

Overall, based on the Bank Sentiment Index calculated as the difference between the number of banks perceiving an improvement and banks reporting a deterioration in economic activity, the respondents perceived some deterioration in the operating environment in 2024 Q4 and 2025 Q1. Looking ahead to 2025 Q2 and Q3, economic sentiment is expected to deteriorate further.

Detailed results and the figures of the Bank Sentiment Survey are available on the MNB’s website here.

Cover photo: Portfolio