Government intervention – both to tackle the country's problematic foreign exchange loans and stimulate new lending – has revived the Hungarian banking market. Now, the race is on for banks to return to profitability.
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The year 2015 is set to be a year of change for the Hungarian banking sector. The 2014 conversion agreement on the country’s foreign exchange (FX)-denominated loans suggest that an end to Hungary’s FX mortgage saga is in sight – a development that should help reduce the banking sector’s high number of non-performing loans (NPL). Moreover, a memorandum of understanding (MoU) between the government, the European Bank for Reconstruction and Development (EBRD) and Hungary’s Erste Bank brings with it hope that there will be a reduction in the bank levy and, more generally, an improvement in sentiment towards the industry.
For years, Hungary's banking sector has been plagued by losses on loans, especially mortgages denominated in Swiss francs and euros, as exchange rate fluctuations following the collapse of Lehman Brothers in 2008 made borrowers’ repayments exorbitant. Customers, many of whom chose FX loans over the forint-denominated equivalents as they offered much lower interest rates at the time, ended up with much higher monthly repayments than they had anticipated when they signed their loan agreements. A subsequent eviction moratorium for FX debtors meant that banks saw their non-performing assets soar.
