As published by Intesa Sanpaolo, Hungarian banks are set to incur heavy costs in the near term. On July 4, the Parliament approved a law that obliges them to reimburse households for costs incurred under contractual clauses on the exchange rate applied to mortgage payments in foreign currency and, more generally, for unilateral changes in contractual conditions. According to a preliminary estimate by the Central Bank, the costs could amount to 900 billion guilders.
Loans to the private sector are down by 4,3%, due to the foreign currency component (-11,2%) both in businesses (-14,3%) and in households (-8,1%). And, although lending in florins to companies is growing, the quality of the credit portfolio shows a further deterioration. Non-performing loans represent approximately 18% of loans (equal to 18,6% in the household sector and 18% in businesses) and are estimated to remain at these levels in the current year. The coverage ratio remains modest and, combined with the new provisions in favor of retail, will require the making of further provisions.
In this scenario, households will experience a still significant drop in deposits (-9,4%), with negative trend monthly rates since autumn 2012. Businesses recorded an increase in deposits of 3,9% (+14,3% at the end of 2013). Foreign liabilities have also been gradually decreasing since December 2010, both in absolute value (-12,3% in May) and in proportion to total funding (from over 30% they fell to 16,9% of total liabilities in May), while the loans/deposits ratio is rebalancing (dropped to 116% in May).
Further contributions from the parent banks, essentially foreign, and the lower requirement connected with the decline in loans led to an improvement in the degree of capitalisation. Tuttavia, economic results are being eroded by high provisions and taxes. The interest margin represents the major source of income, thanks to the wide spread especially in the household sector, remaining high compared to total assets (TA), also compared to the other Countries of Central-Eastern Europe.
