4 December 2023
In October 2023, the MNB again conducted its Bank Sentiment Survey. Based on the responses, the banking system experienced a deterioration in economic sentiment in 2023 Q2-Q3. The uncertain macroeconomic environment, as well as negative shifts in customer risks, profitability, credit demand and the availability of funds had an adverse effect on the assessment of the banking situation. Increased market competition was the only factor that had a positive effect on economic sentiment. In addition to competition, the banks also expect an improvement in the macroeconomic environment and credit demand in the next six months.
In October 2023, based on the Bank Sentiment Index[1] calculated from the difference between the banks experiencing an improving or deteriorating economic situation, a net one-fifth of the respondents indicated that they perceived a worsening of the economic situation in 2023 Q2-Q3. In the next six months, the banks judge more and more factors to contribute positively to economic activity, but overall they still expect the economic environment to be slightly unfavourable.
There are several reasons behind the deterioration in economic sentiment in the survey period:
- The assessment of the domestic macroeconomic environment improved significantly, but the external economic environment showed a slightly more negative picture. While in the previous survey, a net 41 per cent of the banks considered that the economic environment contributed negatively to economic sentiment, this time the net ratio was 31 per cent. According to the banks, the macroeconomic environment may have a positive effect on economic sentiment in the next six months.
- Banks’ access to short and long-term funds continued to deteriorate slightly. A reduction in access to long and short-term funds was indicated by a net 11 per cent and 16 per cent of the banks, respectively. One-fifth of the banks expect the availability of long and short-term funds to deteriorate in the next six months.
- Based on the responses, customer risks increased . The stock of problematic loans decreased slightly in the survey period, but at the same time, a net one-third of the banks experienced a deterioration in creditworthiness in both the household and corporate segments. Looking ahead, around half of the banks expect a deterioration in creditworthiness and portfolio quality.
- Banks perceived a further decline in credit demand in the past six months. While in the previous survey, around half of the banks indicated a decrease in demand for corporate and household loans, this ratio decreased to one-third in both markets. Looking ahead, there are already a relative majority of those expecting demand to pick up in both segments in the next six months.
- A net 38 per cent and 41 per cent, respectively, of the banks indicated a tightening of the regulatory environment in the past six months and the next six months.
- Despite the exceptionally high result at the sector level, a net 11 per cent of the banks reported a deterioration in profitability before impairment, and almost 60 per cent reported an increase in operating costs. Around 80 per cent of the banks expect an increase in operating costs in the next six months.
Based on the responses, the increase in market competition is still the only factor that has a positive effect on economic sentiment. According to the banks, competition intensified in the household and corporate credit markets, as well as in payment services and against non-bank market participants, and they expect it to increase further in the future.
Changes in the Bank Sentiment Index by bank size
Note: 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.
During the Banking Business Survey, the net ratio is obtained by dividing the difference between the number of banks reporting an improvement and banks reporting a deterioration in response to the given question by the number of responding institutions. The answers are not weighted by the market share of individual institutions.
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
[1] The Bank Sentiment Index is made up of seven components: economic environment, market competition, availability of funds, customer risk, demand, regulation, profitability. The Bank Sentiment Index is given as the arithmetic mean of the ratio of the difference in responses to each component (improvement and deterioration) in relation to the entire scope of observation.