"Despite a winding down of attractive deposit interest rate offers and decreasing interest rates, the volume of household deposits grew in Hungary in December 2009. Meanwhile, the volume of retail housing loans was smaller than ever in the past in five years. The stock of both foreign currency and forint loans dropped. The households’ net repayments totalled HUF 8.8 bn of the former and HUF 13.8 bn of the latter.These figures mark the largest ever net repayments in Portfolio.hu’s database. The only silver lining may be that the interest rate on HUF-denominated housing loans has come further down and - similarly to the central bank’s base rate (6.00%) - it is now back at a level not seen for several years.
Contrary to what took place in November, households repaid HUF 22 bn more HUF and FX loans than they borrowed - despite the usual Christmas shopping frenzy. This stands unprecedented for at least three years (as long as Portfolio.hu’s statistics go back), but it is fair to assume it has not happened for a much longer time. With regards to FX loans, the Hungarian household sector has been net repayer every singe month since March 2009. In terms of HUF loans, we could observe more hectic data.
The dried up local lending market is still awaiting some precipitation. For the time being, however, it remains a question whether it will be the new government (after the general elections in April) or an economic upturn hopefully arriving in the second half of the year that will water the cracked soil of loan fields.
However, the introduction of lending caps (mostly based on loan-to-value ratio, LTV) and the Code of Conduct will ensure that no irresponsible lending practices will be used.
With regards to housing loans, we cannot say December was an exciting month. Unless further rate cuts, economic upturn and a rise in employment start to spur the household sector to borrow more, housing loans will remain depressed. There has been some pickup on the home market, but the Dec data could not have possibly shown that. Commercial banks extended less than HUF 20 bn in housing loans in Dec 09, another negative record in Portfolio.hu’s data series. To put this figure in perspective, not that in October 2008, i.e. the onset of the credit crisis, the banks’ housing loans totalled HUF 89 bn, plus HUF 65 bn in mortgage equity withdrawal, the volume of which has also dropped to below HUF 20 bn by Dec.
The further drop in the total borrowing costs (annual percentage rate of charge, APR) is a promising development, though. But these on existing loans remain almost 6% above the key policy rate. The APR on a HUF-based housing loan was 11.78% on average in December, while the comparative figures for EUR and CHF loans were 9.94% and 6.29%, respectively.
The chart below shows a nicely declining trend in the borrowing costs of HUF housing loans that has been on for about six months now. The question is where the central bank’s rate cut cycle will end, but one or two more 25-bp rate reductions will presumably not make HUF-denominated housing loans much cheaper. Note, however, that the interest rate on existing HUF loans may still drop by a few percentage points from 11.78%.
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The interest rates on consumer loans show that commercial banks did not engage in a cut-throat competition despite the shopping spree before Christmas. The APR on HUF loans has even ticked two percentage points higher. However, it was virtually flat at CHF-denominated loans relative to Nov and dropped some at EUR-denominated loans.
The average APR was 27.51% on HUF consumer loans, 14.36% on CHF and 12.2% on EUR loans in Dec 2009. Then again, we should not expect a dramatic decline in this segment, because these type of loans are considered the riskiest of all and the banks incorporate this high risk in their interest rates.
The volume of new consumer loans has been fairly stable for about a year: in Dec 09 the banks extended HUF 17.9 bn in HUF loans, HUF 7.3 bn in CHF and HUF 11.1 bn in EUR loans."
More from the source: Portfolio Online Financial Journal
02.02.2010