As indicated of the focus di Intesa Sanpaolo, due to the continuation of the negative economic situation in Europe in Hungary the fall in loans to the private sector continues (-15% last November), as regards both households (-17,3%) and businesses (-12,4%). Real GDP was also estimated to decline in 2012 (-1,5), while the weak demand for credit is also expected to affect the evolution in 2013 with estimated loans still decreasing (-3,2%). In this context, the foreign currency component of households (mainly items in euros and Swiss francs) shows a decrease of -30%. By contrast, forint loans to households grew at rates of more than 9% in November 2012.
And if on the one hand the trend in household credit reflects the effects of the difficult economic situation with a unemployment rises to 11%, on the other hand, credit to businesses is fully affected by the current economic recession. Furthermore, if the data updated to November 2012 showed a nominal drop of 15%, this becomes, net of the exchange rate effect (approximately -10% against the euro), equal to -9,6%, with a share of loans in foreign currency dropped in November to around 54% of the nominal value in guilders of loans to the private sector (it was 63% at the end of 2011). Lastly, if we consider the inflation rate of 6%, the effective real drop in loans net of the exchange rate effect in November 2012 was -15,4%. In this context, the slowdown in loans is attributed by international research organizations especially to weakness of domestic demand and only in part to the gradual deleveraging process of the major European banking groups, which play an absolutely prevalent role in the country, with a market share of 90% (defined on capital), which has increased in recent years.
Total bank exposures show a significant decrease in September 2012 equal to -8,4% tendential (in recovery however compared to June 2012, -28%), which is part of a trend of reduction of total exposures starting from March 2009, with some modest and temporary recovery as in June 2011 (+4,8%). With reference to the main sectors, the credit exposures of the main international groups still show very negative annual variation rates vis-à-vis the banks (-27% in September from -32% in June) with negative changes since December 2008, as well as towards the public sector even if to a lesser extent (-14,5% in September from -23,4% last June), and towards the private sector (-18% in September from -28% in June).
The exposure of Austrian banks is the largest, more than 30% of the overall exposure of European banks and slightly down on 2011, followed by Italian banks, which cover almost 24% of the total exposure of European banks, an increase compared to the end of 2011. The slowdown in loans was accompanied by a slowdown in deposits, which from September to November showed a negative sign (-1,2%), especially in the household sector (-1,5%) which covers over 60% of deposits. Last November, corporate deposits also fell (-0,6%), while the continuation of the economic recession, with high unemployment and weak real incomes, supports a still negative forecast in 2013 (-1%).
during the second half of 2012 interest rates followed a downward trend, in line with the official rate of the Central Bank, which was reduced from 7% in July to 6,75% in August and then gradually down to 5,75% in December, to reach 5,5% in January. Bank rates went from an average value in 2011 of 8,3% and 5,5% respectively for loans and deposits and a spread of 2,8pp, to 9,1% and 6,3% expected in 2012 with a spread still 2,8pp. Weak portfolio quality and high taxation have had a significant impact on bank results for several years, with negative effects on capital. In companies, the deterioration in the quality of the portfolio is due to the difficulties generated by the crisis that the sector is facing, while in households it is also partly linked to higher non-performing loans and write-offs due to the repayment order for foreign currency mortgages. S&P estimate at end 2012 non-performing loans equal to 18% in the household sector, and 23% for businesses. This trend will have a significant impact on the economic results of the local banking sector, expected to be negative for the third consecutive year, taking into account the need to make significant new provisions. Not forgetting that coverage ratio in Hungary is low (around 50%), especially compared to other Central and Eastern European countries.
Finally, it should be considered that the concentration of the banking business is quite high: 54% of the profits were obtained by the 3 most profitable banks, 3 banks account for 3/4 of the losses, while the majority of banks record a result around 0. Further proof of the vulnerability of the Hungarian banking system.
