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Hungary’s banking sector: Facts & Figures

The stability of the Hungarian economy has improved significantly in recent years. In 2016 the country’s GDP growth was at 2%, below the expectation. Since one important source of the growth is the EU funded fixed capital formation programme and its use is lagging behind, that had a negative impact, as did the relatively weaker performance of the manufacturing and construction industries and net foreign trade. Consumption becomes the main driver that is supported by wage and employment ratio increases. The structural lack of skilled labour force started to be an obstacle for growth in more industries and local regions.

The inflation rate in Hungary is so far in line with the European Union’s trend.

The surplus on balance of payments, the controlled central budget deficit, decreasing state debt, foreign exposures among state and private debts moderated further the financial vulnerability of the country, and in addition to the efficient use of EU structural funds, it opened up some room for the government for fiscal stimuli, such as providing extensive home creation allowances.

The penetration of banking has slightly decreased by 2017 Q1, the sector’s total assets are 98.5% of the annual GDP.

The Hungarian banking sector consists of 99 institutions. Among them 47 are banks and 52 credit or saving cooperatives.

At the beginning of 2017, 49% of the banking sector’s direct stake was kept by domestic entities with almost two-thirds in the hands of the state.

In 2017, the implementation of PSD 2 and its RTSs are the focus. In parallel with this, the Hungarian payment service providers (PSPs) are compelled to participate in the implementation of the central bank’s initiative concerning the launch of a domestic instant payment system (IPS). The Hungarian IPS will probably use EPC Instant Payments standards ensuring the possible interoperability with European euro-based systems. The IPS will also provide the clearing and settlement of online and mobile device-initiated credit transfers, as well traditional transfers up to a maximum of 10 million HUF within ten seconds between the two customers’ accounts involved in the payment.

The banking sector has 2,696 branches and employs around 38,600 people (0.84% of the total employment in Hungary). For the country’s population of 9.8 million in 2017, there are 10.4 million bank accounts, 5,000 ATMs and 84,700 POS terminals.

During the year e-commerce grew by double digits implying the growth of the use of online and/or mobile payments in this segment. Surveys indicate that 35% of the population, having banking relations, use online banking, while this ratio is 50% among the Y generation.

One third of the banking sector’s total loan portfolio is provided to non-financial corporates, one third to households and organisations closely linked to households and one sixth to the foreign sector (half of it to foreign corporate sector).

In 2016, corporate lending grew at a rate unseen since the crisis, expanding by more than 4% in annual terms. Furthermore, in 2016, lending to the SME sector grew by 8%, with the programmes of Magyar Nemzeti Bank (MNB, the central bank) and the sale of state lands playing a major role in this growth.

It is worthwhile noting that the MNB imposed new steps in the context of its “self-financing” programme by the introduction of a cap to the MNB’s key monetary instrument (3-month deposits) in fourth quarter of 2016 that further forced the banks to reallocate their free liquidity to other liquid assets, especially to treasury securities whose volume jumped almost 14% in 2016.

The deposit volume of the banking sector remarkably increased in 2016 (by 8.7%) in total, each sector (local state, corporate and household as well as foreign) contributed positively.

Throughout the last ten years, the FIT system in Hungary (mandatory feed-in-tariffs called KÁT) has been predictable and reliable despite changes to the system in the CEE region. Today, projects in solar power are the most popular, with one power plant producing 499 KWH under KÁT with a 20-25 years’ mandatory takeover period. In the next 1.5 years, several more projects will be developed under these conditions.

The capital position of the Hungarian banking sector is stable. Tier 1 CAR is over 18%, while the total CAR is a bit over 20%. The equity per total asset ratio is almost 11%.

In 2016 profits reached a new high in nominal terms, mainly due to extraordinary or external factors, before tax ROE stayed at 12.13%. Major extra contributors to the unexpectedly good performances are the good profitability of local banks’ foreign affiliates, releasing impairments and the sale of stakes in VISA.

The banking sector has a relatively high contribution to the central budget in Hungary. It provides almost 4% of the total budget revenue (approx. 1.5% of the GDP), half of it is coming from sectorial taxes.