Hungarian banking system declared stable and highly profitable in latest central bank report

The Hungarian banking system remains “stable” and “resilient to shocks”, while bolstered by “outstandingly high profitability”, Zita Fellner, a senior economist at the National Bank of Hungary (NBH), said presenting a report on Wednesday.

Fellner pointed to the ample liquidity, adequate capitalisation and the high quality of loan portfolios of local lenders, highlighting the key messages in the central bank’s latest Financial Stability Report.

She said the local banking sector would meet regulatory requirements on liquidity and capital adequacy even in the event of a severe shock. Lending capacity of the banking system is “abundant” and no credit supply constraints can be identified, she added.

Local lenders’ earnings reached a historical high of HUF 934bn in the first half of 2024, partly due to volatile and one-off items, she said. NPL ratios in the corporate and retail segments reached historical lows of 3.8pc and 2.3pc, respectively, she added.

She acknowledged that the quality of the corporate loan portfolio could be at risk from the depreciation in the commercial real estate market through bank collateral values, but said those risks were mitigated by the fact that the market may have reached the bottom of the cycle.

Earlier identified risks have abated, she said, noting low jobless rates, low levels of credit among companies under liquidation and the extension of the deadline for borrowers of prenatal baby support credit to fulfil their pledges to have children.

Corporate lending growth continued to slow in H1, to 3.7pc for the whole portfolio and to 0.7pc for the SME segment, mainly due to weak demand, while supply-side conditions were a stimulus to growth, Fellner said. She put the annual growth rate of the corporate loan portfolio around 3pc, in light of the tighter supply of subsidised loan schemes, the lack of an upturn in investment loan demand and the high portfolio of liquid assets.

The retail credit market picked up in H1, supported by stable employment and real wage growth, she said. Home loan volume rose by a factor of 2.5, and the total retail lending portfolio could climb by 9pc for the full year, supported by improving macroeconomic fundamentals, restructured family subsidies and lower long-term yields, she added.

She estimated that around HUF 300bn could be rechanneled from voluntary pension funds to home purchases and renovation under a temporary government measure. Interest on and redemptions of retail government securities is expected to be over HUF 3,000bn in 2025 and around one-fifth of that could be used for big investments, she added.

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