Commercial real estate loans: banks are confined to restructuring
Budapest, 19 May 2011 -The Magyar Nemzeti Bank has published the results of its latest lending survey based on banks’ responses. The survey conducted in April 2011 found that the credit conditions to the corporate sector had been tightened further, and looking forward no turnaround was expected. However, compared with the previous survey, reduced ability to lend, rather than risk appetite, was cited by banks contributing to tightening. The survey also found that although 18 per cent of outstanding commercial real estate loans had already been restructured by the end of 2011 Q1, a new wave of restructuring was expected, given the pressure on banks.
The Magyar Nemzeti Bank launched its questionnaire-based survey in the spring of 2003. The survey, conducted on a quarterly basis, gathers information on Hungarian commercial banks’ lending practices. It aims to present banks’ assessments regarding domestic market credit conditions. The latest survey is based on the questionnaires completed by banks in April 2011: it reflects their responses to backward-looking questions relating to 2011 Q1 and their expectations for 2011 Q2–Q3.
Banks reported that they had tightened credit conditions to the corporate sector further since the February 2011 survey, and the tightening was expected to continue over the next six months. Overall, two developments determine the credit supply of the banking sector. On the one hand, some major market participants deleverage, in other words, decrease their supply in the corporate segment. On the other hand, most banks would be willing to increase lending, but without easing the current credit conditions. Banks cited tightened and more costly access to external foreign currency funding and weak ability to accumulate and attract capital stemming from low profitability as the main factors contributing to tightening.
Credit conditions on housing loans remained broadly unchanged, and banks did not expect any major shift over the next six months. Net 18 per cent of banks reported that they had tightened conditions on consumer credit in 2011 Q1, while net 7 per cent expected to ease conditions over the next six months. Based on banks’ responses it can be stated that they would increase the availability of credit, but without easing credit conditions to the household sector.
The ratio of restructured mortgage loans to total mortgage loans had increased by around one percentage point. As a result, 10.4 per cent of outstanding mortgage loans had undergone restructuring by the end of 2011 Q1. However, it is too early to draw firm conclusions about the success of restructuring, given that grace periods on about two-thirds of restructured mortgage loans with reduced debt servicing burden have not yet expired. Based on banks responses debt restructuring is prevailing in commercial real estate lending as well: banks had restructured 18 per cent of total commercial real estate loans by the end of 2011 Q1; while the ratio of restructured loans was expected by banks to reach 30 per cent of commercial real estate loans outstanding by the end of the year. However, it is important to note that, due to the weakness in the real estate market, the pursuit of active restructuring policy points to a pressure weighing on banks, which in turn increases the risk of ‘evergreening’ of commercial real estate loans.
MAGYAR NEMZETI BANK
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