25 November 2024

Budapest, 22 November 2024 – In October 2024, the MNB once again conducted its Bank Sentiment Survey. Based on the responses, the banking sector perceived some deterioration in economic activity in 2024 Q2 and Q3. According to the banks, rising operating expenses, a tightening regulatory environment, declining profitability, increasing corporate credit risks and deteriorating economic environment contributed negatively to their perception of the operating environment. By contrast, increased competition and households’ rising credit demand had a positive impact.

Factors determining developments in economic sentiment:

  • From 2023 Q4, the economic environment contributed positively overall to banks' economic sentiment. In the current survey, however, a net 16 per cent of the respondents perceived a deterioration in both the domestic and the international macroeconomic environment. Looking ahead, a net 18 per cent of banks expect improvement in the economic environment again.
  • Market competition has intensified and consequently continues to have a positive impact on economic activity. Banks perceived the pick-up in competition primarily in relation to non-bank market participants and in the payment service segment, which may reflect the increase in the financial transaction levy. Looking ahead, competition is likely to intensify in all sub-segments, most notably in the retail segment, where one half of the banks expect an upturn.
  • According to the banks, the availability of funds has remained unchanged over the past six months. In parallel with the decline in interest rates, the proportion of banks perceiving a deterioration in the availability of funds declined steadily, most notably in the case of long-term funds. Going forward, banks expect that the availability of funds will remain stable.
  • Thanks to a stable labour market, debt cap rules and ample corporate liquidity, credit risks have not materialised, and thus portfolio quality made a neutral contribution to banks’ economic sentiment. The creditworthiness of retail customers has improved steadily over the past year and a half. However, a net 22 per cent of banks perceived a deterioration in creditworthiness in the past six months in the corporate segment, and looking ahead one fifth expect further deterioration; that notwithstanding, portfolio quality may remain unchanged overall.
  • Half of the banks observed a pick-up in retail credit demand in 2024 Q2 and Q3, and they expect a continuation of this trend in the coming period. The latter may be linked to the easing interest rate environment, stronger consumer confidence, the surge in family support programmes and new government announcements. A net 11 per cent of banks perceived a fall in demand for corporate loans, one third expect an increase as early as the next six months.
  • 41 per cent of banks reported a tightening of the regulatory environment. This may reflect the countercyclical capital buffer activated in mid-2024, the prolongation of the interest rate cap, the voluntary APR ceiling still in place at the time and the tightening of the windfall tax in mid-2024. 27 per cent of banks expect further tightening of the regulatory environment in the next six months; this view of the regulatory environment may be attributed to the changing Capital Requirements Regulation (CRR3) and the prospect of an APR ceiling.[1]
  • Almost one third of banks indicated a deterioration in profitability before impairments, while 59 per cent perceived an increase in operating expenses. Looking ahead, 54 per cent of banks expect profitability to decline, and 65 per cent expect operating expenses to increase.

On the whole, based on the Bank Sentiment Index[2] calculated as the difference between the number of banks perceiving an improvement and banks reporting a deterioration in economic activity, respondents perceived some deterioration in the operating environment in 2024 Q2 and Q3. Looking ahead to 2024 Q4 and 2025 Q1, economic sentiment is expected to remain unchanged.

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 the number 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] In mid-September, the Ministry for National Economy once again requested banks to voluntarily reduce the APR on housing loans even further, to below 5 per cent. At the time of the survey, the measure was still being drafted by the Banking Association.

[2] The Bank Sentiment Index is made up of seven components: economic environment, market competition, availability of funds, customer risk, demand, regulation and profitability. The Bank Sentiment Index is given as the arithmetic average of the ratio of the difference in responses to each component (improvement and deterioration) in relation to the entire scope of observation.