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Hungary’s banking sector: Facts & Figures

Updated September 2019 – For earlier editions of Facts & Figures click here

The stability and performance of the Hungarian economy has improved significantly in recent years. In 2018 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 2018 almost reached the target of the Hungarian Central Bank, at 2.8%.

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 2018 especially due to the relatively high growth rate. The sector’s total assets were 93.6% of the annual GDP of which 49.9% were held by the top five banks.

The Hungarian banking sector consists of 60 institutions. Among them are 26 commercial banks, nine foreign bank branches, five mortgage banks, four building societies, three specialised banks and – as a result of massive consolidation – 13 credit or saving cooperatives.

At the end of 2018, 49.9% of the banking sector’s shareholding was held by domestic entities with almost two-thirds of that in the hands of the state.

The banking sector has 2,235 branches and employs around 40,000 people (0.89% of the total employment in Hungary). For the country’s population of 9.8 million in 2018, there are 10.5 million bank accounts, 9.1 million payment cards (of which 72% are contactless), 5,100 ATMs and 136,400 POS terminals.

Electronic payments increased dynamically in 2017. The payment card accepting network grew by 25% and 83% of POS terminals support contactless card acceptance. In 2017, two-thirds of retail payments were made by contactless cards. The proportion of payment accounts accessible by internet or mobile banking services increased by 2.5 percentage points to 82%.

The National Bank of Hungary has launched a project to implement a domestic (denominated in HUF) instant payment 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. This service will start on 1 July 2019.

Some 35% of the banking sector’s total loan portfolio is provided to non-financial corporates, 30% to households and organisations closely linked to households and 15% to the foreign sector (three quarters of it to foreign corporate sector). In 2018, corporate lending grew at a rate unseen since the crisis, expanding by almost  15% in annual terms, retail lending lagged behind with an increase of 6%.

The deposit held by the banking sector increased by 9.5% in 2018 in total, with  both corporate and household deposits increasing by 15%.

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 subsidised price for the selling of the produced electricity for a fixed period (mandatory takeover period). The banking sector needs a proven and clear technology, a stable and foreseeable regulatory environment and professional investors.

The KÁT feed-in-tariff system 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 favourable for investors. In 2017 a new financial incentive scheme called METÁR was introduced which is a slightly stricter, more competitive and provides a tender-based price subsidy to investors in the case of larger scale projects. The main trend in Hungary at present is the hegemony of the solar projects. The transition from 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) were 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-year mandatory takeover period. 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 on the banking market.

The capital position of the Hungarian banking sector is stable. The Tier 1 capital adequacy ratio (CAR) is almost 20%, while the total CAR is a bit over 21%.

In 2018, profits of the Hungarian institutions dropped by almost 15% as compared to 2017, but before tax return on equity remained over 13.4%. The reason behind the lower profitability is the moderating rate of releasing impairments.

Contributor: Gábor Schöner schoner@hba.org.hu