EMERGING MARKETS REPORT
Hungary's banks tighten credit as crisis bites
By
Polya Lesova, MarketWatch
Last update: 4:07 p.m. EDT March 16, 2009
NEW YORK (MarketWatch) -- The willingness of Hungarian banks to lend to households and businesses fell substantially in the second half of last year, with lenders expecting further deterioration in their loan portfolios this year, the Hungarian central bank said Monday.
The increasing turbulence in the fourth quarter of 2008 triggered "a sharp turnaround" in lending behavior, forcing banks to tighten credit significantly, Magyar Nemzeti Bank said in a report presenting the findings of its latest survey on bank lending.
Nearly all banks surveyed reported that they had tightened credit conditions for both housing loans and consumer loans in the second half of last year, and most of them expressed their intention to tighten conditions further in the first half of 2009.
"Thus far, banks have not experienced deterioration in the household loan portfolio to any significant extent, but in view of the unfavorable economic prospects, the effect of the financial crisis on the real economy and the weakening of the forint, they anticipate significant deterioration" in the first half of 2009, the central bank said.
Hungary, a member of the European Union since 2004, has been one of the countries in Eastern Europe hardest hit by the global economic crisis.
Last November, Hungary sought emergency loans from several multinational institutions. It received a $25 billion financing package to which the International Monetary Fund committed $15.7 billion, the E.U. pledged $8.4 billion and the World Bank, $1.3 billion.
The MSCI Hungary stock index has fallen 38% this year, making it the worst performing major emerging market. Since last July, the Hungarian currency, the forint, has fallen about 40% against the U.S. dollar.
In the corporate lending market, willingness to lend also fell sharply, particularly affecting loans to large and medium-sized enterprises as well as commercial real estate loans.
The deterioration of banks' corporate loan portfolios seen late last year is expected to continue in the first half of 2009, particularly in the agriculture, manufacturing, construction, tourism, financial services and real estate sectors, the central bank said.
Hungarian banks also reported significantly weaker demand for foreign currency housing loans, the central bank said. There was "a considerable decline" in household loans denominated in Swiss francs.
Many mortgages in Hungary are denominated in foreign currencies, particularly the Swiss franc. The recent strength of the franc has worsened Hungary's troubles. Last week's weakening of the franc on the back of intervention by the Swiss National Bank is helpful for the Hungarian forint and other Central European currencies, according to analysts.
"However, we should be careful not to overstate the durability of this support given that the region continues to face -- with of course, differentiation -- significant fundamental challenges," said Koon Chow, an analyst at Barclays Capital in a research note.
"This is unlikely to have eased meaningfully, despite the drop in debt servicing costs associated with a generalized fall in the Swiss franc."
Polya Lesova is a New York-based reporter for MarketWatch.
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