MAGYAR NEMZETI BANK
Percentage point
2010 Q1 Q2 Q3 Q4 2011 Q1 Q2 Q3 Q4 2012 Q1 Q2 Q3 Q4 2013 Q1 Q2 Q3 Q4 2014 Q1 Q2 Q3 Q4 2015 Q1 Q2 Q3 Q4 2016 Q1 Q2 Q3 Q4 2017 Q1 Q2 Q3 Q4 2018 Q1 Q2
7 6 5 4 3 2 1 0
Percentage point
Romania Czech Republic V3 average
Slovakia Euro area
7 6 5 4 3 2 1 0
Rapid credit growth occurs in equilibrium only if the real economy expands steadily and substantially. Lending, incomes and investment need to increase in tandem, as all three are necessary conditions of sustainable convergence, but none are sufficient in themselves. The lending boom must affect (1) a larger group of customers, (2) in a sound structure (3) at the lowest possible cost. If lending rose dynamically without income growth, it would be unsustainable over the long run. The MNB stands ready to mitigate risks with its microprudential and macroprudential instruments. For the credit convergence path to be sustainable, borrowing needs to be broader based. On the convergence path, households’ outstanding borrowing relative to GDP is estimated to be as high as 40 percent by 2030, with a roughly 30 percent contribution from housing loans. In the context of the current yield curve and income convergence on the macroeconomic path, the payment-to-income ratio would rise from 8 to 14 percent by the end of the time horizon (Chart 4-9). Although this would be slightly above the value before the 2008 crisis, it would not be exceptional in an international comparison (e.g. it is currently higher in Denmark, the Netherlands and Norway) and it would have a sounder structure. Furthermore, if wage convergence is achieved, households may have more leeway in spending their disposable income: therefore, the equilibrium debt service burden is assumed to be higher than prior to the crisis. It is important to note, however, with the assumed credit dynamics that households’ debt service will be sustainable only if it is coupled with broader-based borrowing and with instalments that are predictable over the long run.
GROWTH REPORT • 2018
16 14 12 10 8 6 4 2 0
Percent
Percent
16 14 12 10 8 6 4 2 0
Principal payment/disposable income Interest payment/disposable income
Poland Hungary
Note: APR-based, smoothed spread over the 3-month BUBOR in the case of variable-rate housing loans or for loans with a rate fixed for up to 1 year, while in the case of housing loans fixed for a period longer than 1 year, the smoothed spread over the relevant IRS. Source: MNB.
78
Chart 4-9: Households’ debt service
2002Q2 Q4 2003Q2 Q4 2004Q2 Q4 2005Q2 Q4 2006Q2 Q4 2007Q2 Q4 2008Q2 Q4 2009Q2 Q4 2010Q2 Q4 2011Q2 Q4 2012Q2 Q4 2013Q2 Q4 2014Q2 Q4 2015Q2 Q4 2016Q2 Q4 2017Q2 Q4 2019 2021 2023 2025 2027 2029
Chart 4-8: Interest rate spreads in an international comparison for housing loans provided in domestic currency
Source: MNB.
4.2 The role of an efficient guarantee system in corporate lending Institutional guarantees play a major role in facilitating access to credit for SMEs, which form the backbone of the economy. Ideally, guarantee institutions enable the financing of viable customers/transactions that would not receive funds, or not in a sufficient amount, in the absence of a guarantee, by mitigating the credit risk of financial institutions. Under the suretyship undertaken by the guarantee institution, it assumes the debt obligation up to the extent of the guarantee if the customer defaults in exchange for a fee paid by the debtor, thereby reducing the bank’s credit risk. If the debtor defaults and the guarantee is claimed, the guarantee institution pays the bank the debt up to the amount of the guarantee. The amount received later from any other collateral securing the transaction is divided between the institution and the credit institution in proportion of their outstanding claims (Chart 4-10).
