Hungary’s central bank will impose limits on household lending to cut down on “excessive” indebtedness and called for rule changes that spur banks to clean up their portfolios and stabilize finances.
The Magyar Nemzeti Bank wants to impose an upper limit on the payment-to-income ratio for all retail loans and tighten regulations on proving disposable income, according to the Financial Stability Report published today in Budapest. It may also introduce stricter loan-loss rules and a “bad bank” to accelerate the cleanup of lenders’ non-performing loans.
Hungarian banks, which pay Europe’s highest banking tax, are battling to stem an increase in bad loans, which accounted for 18 percent of total corporate credit and 18.6 percent of household loans at the end of last year. Slow steps to shed bad loans threatens banks’ financial stability and is a “significant macro-prudential risk,” the bank said.
“The concept of a bad bank offers the most efficient and fastest solution to the problem of non-performing portfolio,” according to the report.
Bad loans soared as the weakening forint drove up debt repayments on foreign-currency household mortgages and companies saw their profitability decline during the recession that followed the 2008 global financial crisis.
OTP Bank Nyrt., Hungary’s largest lender, rose 1.1 percent to 4,735 forint, the highest since Nov. 7, at 2:03 p.m. in Budapest. OTP competes with mostly foreign-owned banks including Erste Group Bank AG (EBS), UniCredit SpA (UCG), KBC Groep NV (KBC), Intesa SanPaolo SpA (ISP) and Raiffeisen Bank International AG. (RBI)
The central bank will leave loan-to-value regulations for forint-denominated household loans unchanged, while the ratio as well as the payment-to-income ratio will be subject to “much stricter regulations” for foreign-currency loans. The final details of the new limits have not yet been announced.
The forint weakened 0.1 percent to 303.94 to the euro. It has dropped 2.2 percent this year, the fifth-worst performance among 24 emerging-market currencies tracked by Bloomberg.
The domestic banking industry’s stability is “strong,” with an overall capital-adequacy ratio of 17.4 percent at the end of 2013, the bank said. Additional capital needs amount to 18 billion forint ($81 million) at most through the end of 2015 under “a severe, but plausible, negative scenario,” according to the report.
The sector’s loan-to-deposit ratio is set to stabilize at around 100 percent in the coming years, compared with 107 percent at the end of 2013, it said.
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