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Hungary’s banking sector: Facts & Figures

Updated December 2020 – For earlier editions of Facts & Figures click here

The stability and performance of the Hungarian economy have improved significantly in recent years. In 2019 the country’s GDP growth was 4.9%. Among production components of the GDP, the private service sectors and manufacturing industry were the major contributors but the construction industry has also expanded quickly. Regarding the components of use, domestic consumption became the main driver, supported by wage and employment increases. Capital formation also contributed 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 average inflation rate during 2019 was a bit over the target of the Hungarian Central Bank, at 3.4%.

The surplus on balance of payments, the controlled central budget deficit, decreasing state debt and foreign exposures among state and private debts reduced the financial vulnerability of the country. 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 and family support allowances.

The penetration of banking had slightly decreased by the end of 2019 especially due to the relatively high GDP growth rate. The sector’s total assets were 92.6% of the annual GDP of which 61% were held by the top five banks.

The Hungarian banking sector consists of 41 institutions. Among them are 21 commercial banks, eight foreign bank branches, five mortgage banks, four building societies, and three specialised banks. The year 2019 was that of the cooperative sector’s final consolidation, including the related commercial banks. At end of April, three banks and a cooperative merged, while at end of October this new entity merged with another commercial bank and 11 saving cooperatives.

At the end of 2019, 58,6% of the banking sector was controlled by local entities with almost one-seventh of that in the hands of the State.

The National Bank of Hungary has implemented its domestic (denominated in HUF) instant payment solution and launched it on the 2 March 2020 with the obligatory participation of the GIRO Zrt. (domestic retail payment clearing house) and 34 domestic payment services providers. The new payment system is available to make payments between Hungarian payment accounts within seconds, on a 24/7/365 basis. The system is able to manage secondary account identifiers as well, like telephone numbers, e-mail addresses and tax numbers. From the 1st September 2020, it will also be possible for consumers and other market participants to initiate and send Requests to Pay transactions and for corporates to send batch transactions, as well.

The banking sector has 1,957 branches and employs around 40,000 people (0.88% of the total employment in Hungary). For the country’s population of 9.8 million in  2019, there are 10.5 million bank accounts, 9.4 million payment cards (out of which 8 million are contactless), 5,095  ATMs and 150,000 POS physical terminals and 13.000 virtual ones.

Electronic payments increased dynamically in 2019, accounting for 1.4 billion payment transactions. The payment card accepting network’s already 89% support contactless card acceptance. In  2019, from the 14 billion electronic payments, 1 billion were executed by payments cards. The number  of payment accounts accessible by internet or mobile banking services achieved 8.4 million accounts (out of 10.5 payments accounts).

45% of the banking sector’s total loan portfolio is provided to non-financial corporates, 30% to households and organisations closely linked to households, and 14% to the foreign sector (of which two thirds to foreign corporate sector). In 2019, retail lending grew at a rate unseen since the crisis, expanding by over 15% in annual terms, corporate lending lagged behind a bit with an increase of 8%.

The deposit value of the banking sector – excluding interbank transactions – remarkably increased in 2019, by 9.0% in total, corporate and household contributed positively, altogether by 8.2%.

The financing of renewable energy projects usually depends on the visibility of the input-output side and the technology. Profitability typically depends on a feed-in-tariff system, which ensures a subsidized price for the selling of the produced electricity for a fix period (mandatory takeover period). The banking sector needs a proven and clear technology, a stable and foreseeable regulatory environment and professional investors.

The feed-in-tariff system (KÁT) in Hungary, which was available for ten years until 2017, was a calculable and reliable system supporting the financing of renewable projects and was very advantageous for investors. In 2017 a new financial incentive scheme called Renewable Energy Support System (METÁR) was introduced which is a bit stricter, more competitive and provides a tender-based price subsidy to investors in the case of larger scale projects. Nowadays in Hungary the main trend is the predominance of solar projects. The transition from the KÁT Regime to METÁR generated a rush for KÁT licensing before its closure. More than 2,800 KÁT-eligible power plant licences (over 2,000MW combined) had been submitted by the end of 2016. The most popular “product” is the solar power plant with 0.5 MW capacity under the KÁT with a 25 years mandatory takeover period. The majority of these projects will be developed and constructed in the next one to two years and there is already a huge financing need for these projects in the banking market. From 2019, the METÁR can be allocated on tenders only. The first call for the METÁR tender was in September 2019. There was strong competition with bids more than 2,5 times the allocable capacity. About 95 MW new capacity won support on the tender, winners got prices 20-30% lower than the previous administratively set tariffs. The second call was in July 2020, deadline for the applications was 15 October 2020. The second call is almost twice as big as the first call. According to the Ministry for Innovation and Technology, calls will happen twice a year from 2021 and 300 – 500 GWh/year renewable electricity can be supported in each call.

The capital position of the Hungarian banking sector – including OTP group’s foreign affiliates – is stable. The CET 1 capital adequacy ratio (CAR) is almost 15%, while the total CAR is almost 17%.

In 2019, profits of the Hungarian institutions dropped, as compared to 2018, but before tax return on equity remained over 16%.

Contributor: Gábor Schöner schoner@hba.org.hu