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Hungary’s banking sector: Facts & Figures

Updated September 2018 – For earlier editions of Facts & Figures click here

The stability and performance of the Hungarian economy has improved significantly in recent years. In 2017 the country’s GDP growth was at 4%. Among production components of the GDP, the private service sectors and manufacturing industry were the major contributors but the construction industry also expanded quickly. Regarding the components of use, domestic consumption became the main driver, supported by wage and employment ratio increases. Capital formation also contributed much to the good performance and although domestic consumption strongly increases imports, net exports were still an important factor. The economy is close to full employment and a structural lack of skilled labour force, both in terms of specific industries and geographical areas, is an issue.

The inflation rate in Hungary mainly follows the European Union’s trend, the Philips’ curve is flat, meaning so far the wage increase did not cause inflation pressure. However, the stagnation of productivity is an issue that the economic administration is trying to address.

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 had slightly decreased by the end of 2017. The sector’s total assets were 95.2% of the annual GDP of which 49.5% was kept by the top five banks.

The Hungarian banking sector consists of 69 institutions. Among them are 26 commercial banks, nine foreign bank branches, five mortgage banks, four building societies, three specialized banks and – as a result of massive consolidation – 22 credit or saving cooperatives.

At the end of 2017, 50.5% of the banking sector’s shareholding was kept by domestic entities with almost two-thirds of that in the hands of the state.

The banking sector has 2,420 branches and employs around 39,000 people (0.88% of the total employment in Hungary). For the country’s population of 9.8 million in 2017, there are 10.5 million bank accounts, 9.1 million payment cards (of which 72% is contactless), 5,100 ATMs and 136,400 POS terminals.

Electronic payments increased dynamically in 2017. The payment card accepting network grew significantly by 25% which also means that 83% of the POS terminals support contactless card acceptance. In 2017, two-thirds of retail payments were made by contactless cards. The rate of access to payment accounts by internet and mobile banking services increased by 2.5% which means that 82% of the payment accounts can be accessed by one of them.

The National Bank of Hungary has launched a project to implement a domestic (denominated in HUF) instant payment (IP) solution. The new payment system will be available to make payments between Hungarian payment accounts within seconds, on a 24/7/365 basis. It will also be possible for market participants to provide a range of additional services. The IP service will start on 1 July 2019. The new basic infrastructure supports innovative payment services.

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 2017, corporate lending grew at a rate unseen since the crisis, expanding by more than 13% in annual terms, while retail lending almost stagnated with an increase slightly over 1%.

The deposit value of the banking sector remarkably increased in 2017 (by 7.7%) in total, each major sector (local state, corporate and household as well as foreign) contributed positively.

The capital position of the Hungarian banking sector is stable. The Tier 1 capital adequacy ratio (CAR) is over 18%, while the total CAR is a bit over 20%.

In 2017 profits reached a new high in nominal terms, mainly due to extraordinary or external factors, before tax ROE remained over 14.5%. Major extra contributors to the unexpectedly good performances are the good profitability of local banks’ foreign affiliates and releasing impairments.

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

Contributor: Péter Vass vass.peter@bankszovetseg.hu

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