23 August 2024

In July 2024, the MNB again conducted its Bank Sentiment Survey. Based on the responses, the banking system experienced no change in the economy in 2024 H1 and no change is expected in the second half either. According to the banks, the intensification of market competition, the increase in credit demand, and the stabilisation of the economic environment contributed positively to the perception of the business environment. By contrast, the increase in operating costs, the deterioration in profitability and the increase in customer risks had a negative impact.

Based on the Bank Sentiment Index[1] calculated from the difference between the banks experiencing an improving or deteriorating economic situation in July 2024, overall, the respondents perceived their business environment to be unchanged in 2024 H1, and they expect the same for the second half of the year. A mixed picture emerges by bank size: while small banks continued to perceive the deterioration in economic sentiment, medium-sized and large banks are already experiencing an improving environment. This difference is explained to the greatest extent by the assessment of the (external and internal) macroeconomic environment as well as households’ demand for loans and their creditworthiness.

Factors determining developments in economic sentiment:

  • The economic environment – as in the previous survey – has already contributed positively to the banks’ economic sentiment. This was supported by both the domestic and international environment. This trend may continue in 2024 H2, with one-fifth of banks in net terms expecting an improvement in the economic environment.
  • Market competition continues to intensify. According to the banks, competition has intensified in the household and corporate credit markets as well as in the field of payment services and against non-bank market participants. Voluntary ceilings on lending rates and the changed conditions of family support programmes may also have played a role in the intensification of competition. Looking ahead, the banking system expects a further increase in market competition, especially in the household segment.
  • A net 41 per cent of banks perceived a pick-up in household loan demand in 2024 H1, and looking ahead, the same proportion expect a further increase. This may be related to the easing of the interest rate environment, the strengthening of consumer confidence and developments in the use of family support programmes. According to the banking system, demand for corporate loans moderated slightly in the first half of the year, but for the rest of the year, a net 22 per cent of the banks expect a recovery.
  • Access to finance has improved slightly. Although access to short and long-term funds did not change significantly in 2024 H1, and this is expected going forward, interbank liquidity increased according to a narrow range of banks.
  • Since the payment moratorium was lifted at the end of 2022, the increase in customer risks has been perceived by an increasingly narrow range of banks. Credit risks did not materialise due to the stable labour market, debt cap rules and high corporate liquidity. As a result, portfolio quality contributes neutrally to the banks’ economic sentiment. A net 8 per cent of the banks perceived a deterioration in creditworthiness in the household segment and 19 per cent in the corporate segment. Nevertheless, these ratios are still the lowest in the last two and a half years.
  • A third of the banks indicated a tightening of the regulatory environment for the past six months and 38 per cent for the next six months. This could be related to the increase in capital buffer requirements at the beginning of 2024, the full activation of the MREL requirement, and the persistence of interest rate caps and ceilings. Looking ahead, the extension of the interest rate cap and the (cyclical and positive neutral) activation of the countercyclical capital buffer may explain the perception of the regulatory environment.
  • In addition to the increase in operating costs, a fifth of the banks indicated a deterioration in profitability before impairment. In addition to interest income received from the central bank, one-off items also contributed to the exceptionally high profitability in 2023. With the waning of these effects and the normalisation of the interest rate environment as well as the modification affecting the possibility to reduce extra profit tax, the banking system’s profit is expected to decline gradually.

Changes in the Bank Sentiment Index by bank size

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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.