The results of the MNB Bank Sentiment Survey 2022 Q3 have been published
21 November 2022
In October 2022, the MNB conducted its Bank Sentiment Survey 2022 Q3. Based on the survey responses, the banking system experienced a substantial deterioration in economic activity in the third quarter, and further deterioration is expected over the next six months. A key factor contributing to this was growing uncertainty about external and domestic macroeconomic prospects; however, the deterioration in financing conditions, the increase in customer risk, as well as the decrease in demand and profitability also significantly contributed to the deterioration in the banks' economic sentiment.
While the economic situation was considered unchanged by the banks at the end of 2021, an increasing proportion of them perceived a deterioration in 2022 Q1, Q2 and Q3. This trend is expected to increase in the next six months as well: a net 45 per cent of banks expect a worsening in economic sentiment, which, based on the responses to the Lending Survey, can also be seen in tightening lending conditions.
Several reasons can be identified behind the worsening in economic sentiment:
- In the evaluation of the external and internal macroeconomic environment in the third quarter, a net 89 per cent of the banks indicated a deterioration, to which both the domestic and the international environment contributed. This represents a deterioration similar to the period of the first wave of the coronavirus epidemic. About two-thirds of the responding institutions expect the negative effects to continue over the next six months.
- Access to both short-term and long-term funds has worsened in the recent period, in line with the increase in the international interest rate environment and the general tightening of monetary conditions. Half of the institutions expect a further deterioration in the availability of funds, including interbank liquidity over the next six months.
- Customer risks increased significantly, in line with the expectations. Primarily, the creditworthiness of corporate customers showed a deterioration in the past six months, as indicated by a net 53 per cent of banks. As a result of the extension of the interest rate cap, a smaller but still significant proportion of banks (37 per cent) perceived a deterioration in the creditworthiness of retail customers. Over the next six months, 80 per cent of banks expect a deterioration in portfolio quality, and half of them indicated an expected decrease in risk appetite. According to about three-quarters of the responding institutions, the creditworthiness of the corporate and retail segments will also deteriorate over the next six months.
- Banks perceived a significant decrease in credit demand in the retail segment and a smaller decrease in the corporate segment, in accordance with the results of the Lending Survey. Looking ahead, half of the banks expect a further drop in demand in both the retail and corporate segments.
- A tightening of the regulatory environment was indicated by 32 per cent of the banks in relation to the past half year and the next half year as well. 39 per cent of the banks indicated a deterioration in profitability before impairment, and 71 per cent an increase in operating costs. In the next six months, half of the banks expect a further decrease in profitability, and three-quarters expect an increase in operating costs.
The increase in market competition is the only factor that continues to have a positive effect on the banks’ economic sentiment. Competition in the retail segment, in payment services, and against non-bank players also strengthened, while it eased slightly in the corporate segment. According to the respondents, the competition in this latter segment is expected to intensify over the next six months.
Overall, therefore, the banking system experienced a substantial deterioration of the economic sentiment, to which the unfavourable external and domestic macroeconomic environment contributed to the greatest extent; however, the deterioration in the availability of funds, the increase in customer risk, and the decrease in demand and profitability also substantially worsened the banking economic situation. Apart from the intensification of competition, all factors significantly influence the deterioration of the economic sentiment over the next six months.
The Bank Sentiment Index by bank size
Note: The positive domain denotes an improvement in economic sentiment, while the negative domain denotes a deterioration compared to the previous half-year. The Bank Sentiment Index is the arithmetic average of seven components (economic environment, market competition, availability of funds, customer risk, demand, regulation, profitability). The last data point is an estimation. Source: MNB Bank Sentiment Survey.
Detailed results and the figures of the Bank Sentiment Survey are available on the MNB’s website at the following link:
https://www.mnb.hu/en/financial-stability/publications/bank-sentiment-survey