"The National Bank of Hungary (NBH) has on Thursday published the results of its latest loan survey conducted in January 2008, which found that while local banks have relaxed their lending conditions for households and tightened them for corporates.The NBH launched its Senior Loan Officer survey 2003 in a bid to understand developments and processes related to the lending market more deeply.
The latest one of this semi-annual survey was conducted in January and examined the corporate and household lending segments and, for the first time, the municipal lending segment as well.
In relation to the household lending market, the results of the survey indicated that banks' willingness to lend increased both in respect of housing loans and consumer loans in 2007 H2.
Credit brokers play an increasingly important role in sales activity and in the process of refinancing (in terms of new placements brokers may account for up to 50%).
Respondents relaxed their credit conditions, and their plans for 2008 H1 also point in this direction, primarily due to the strong competition in the banking sector. This competition is also motivating banks to launch new, riskier products.
According to the participating banks, the household segment's willingness to borrow has remained at steadily high levels while real wages are declining, as households are maintaining their previous level of consumption in this manner. Banks reported a slight deterioration in portfolio quality in 2007 H2, and forecasted this trend to continue for personal loans, credit card products and mortgage loans.
It is worth underlining that the easing tendencies in household lending conditions in Hungary stand in contrast to the foreign lending surveys, as banks reported a clear trend towards tighter household lending conditions in the euro area, USA, Great Britain, Poland and Lithuania.
In the corporate segment, the willingness to lend is not increasing, and - in contrast to the previous trends - there was even a decline in the growth rate for small and micro-sized enterprises.
Respondents perceived an increase of credit demand in the corporate segment, although this was not motivated by increasing investment, but rather by increasing inventory financing needs and a decrease in firms' internally generated funds.
Banks tightened their credit conditions (in spreads over funding costs in the corporate segment), because of the unfavourable economic prospects, industry-specific problems (especially in the construction industry) and deterioration in banks' liquidity position.
In respect of commercial real estate loans, banks reported significant tightening of credit standards for housing projects, whereas the position for office building projects was better than previously expected. Respondents experienced a slight increase in default rates in 2007 H2 and expect this trend to continue.
The tightening trends in the corporate segment experienced in this survey for Hungary were similar to the results of foreign lending surveys, which showed credit condition tightening in the corporate segment.
In the case of municipalities, banks reported strong demand for financing. This increase in demand was related primarily to bond issuance as such issuance need not be conducted within the framework of public procurement procedures, and there are fears that this favourable treatment will be abandoned. Banks tightened their conditions in the municipal segment.
US sub-prime crisis indirectly affected the majority of respondents: funding costs increased by not more than 80 basis points. Banks will partly or fully transfer this increase in funding costs to customers, but the extent depends on the competitive situation."
Source: Portfolio Online Financial Journal
14.03.2008