21 May 2024
In April 2024, the MNB again conducted its Bank Sentiment Survey. Based on the responses, the banking system experienced no change in economic sentiment in 2023 Q4 and 2024 Q1. According to the banks, rises in operating costs, the decrease in income, the increase in customer risks and the tightening of regulations contributed negatively to the perception of their operating environment during this period. On the other hand, the improvement in the availability of funds, the increase in credit demand, the stabilisation of the economic environment and the intensification of competition had a positive effect. In the next six months, the banks are expecting a slight improvement in the overall economic situation, mainly driven by higher credit demand, the improvement in the economic environment and increased market competition.
Based on the Bank Sentiment Index[1] calculated from the difference between the banks experiencing an improving or deteriorating economic situation in April 2024, the respondents perceived their operating environment to be unchanged in 2023 Q4 and 2024 Q1. Looking ahead to 2024 Q1-Q2, a net 7 per cent of banks already expect economic activity to improve.
Factors determining developments in economic sentiment:
- In the previous survey conducted in January, the domestic macroeconomic environment already contributed positively to banks’ economic sentiment. Based on the current survey, the assessment of the international environment in the past six months also pointed to an improvement. With this, the economic environment as a whole contributed positively to the economic sentiment of banks, which was last seen in the middle of 2021. In 2024 Q2-Q3, this factor can have a positive effect according to a net 38 per cent of banks, which can be supported by both the domestic and foreign environment.
- The increase in market competition continues to have a positive effect on economic sentiment. According to the banks, competition intensified in the retail and corporate credit markets, as well as in the field of payment services and against non-bank market participants, and it may increase further in the future. Voluntary ceilings on lending rates may also have played a role in the intensification of competition.
- Access to funds has a slightly positive effect on the assessment of the bank’s sentiment. The improvement in access to short-term funds was indicated by a narrow range of banks, and this may continue in the next six months. The availability of long-term funds has not changed, but looking ahead, 8 per cent of banks expect an improvement in this regard as well.
- Since the moratorium was lifted at the end of 2022, an increasingly narrow circle of banks has sensed the increase in customer risks. Credit risks did not materialise thanks to the stable labour market, borrower-based measures and high corporate liquidity. However, 16 per cent of the banks perceived a deterioration in creditworthiness in the retail segment, and 19 per cent in the corporate segment – although these ratios are the lowest values seen over the past year and a half. Banks’ risk appetite increased for the first time in two years, and this is expected to continue in 2024 Q2-Q3.
- A quarter of the banks sensed a pick-up in demand for consumer credit in the past six months, and looking ahead, more than half of the respondents expect an increase. According to the majority of institutions, demand for corporate loans has not changed, and 30 per cent of banks expect a pick-up in demand in the corporate sector in the next six months.
- A net 16 per cent of the banks indicated the tightening of the regulatory environment for the past six months, and 19 per cent for the next six months. This may be related to the increase in capital buffer requirements during 2024 and the fully activated MREL requirement, as well as the effect of interest caps and ceilings announced and extended during the period under review.
- A fifth of the banks indicated a deterioration in profitability before impairment, but three-quarters of them perceived an increase in operating costs. In addition to interest income received from the central bank, exceptionally high profitability in 2023 was caused by one-off items, and the banking system’s profit is expected to decrease as their effects wear off and the interest rate environment normalises. Government measures related to taxation and pricing also contribute to this.
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.