Banks should prepare for the challanges that record low interest rates pose, Márton Nagy, deputy-governor of the National Bank of Hungary said at a conference.
"Hungarian banks never faced such low interest rates. They need to prepare for this very serious challenge to the banking system", he said. A 100 basis point reduction in the base rate is equivalent of a HUF 20-30 billion loss in income, he said. The central bank has launched its monetary easing policy in 2014, which has led to the cut in interest rates from 7% to record low 1.05%.
Besides low interest rates, the cleaning of the non-performing loan portfolio of banks, reforms in the Bubor market and profitability of the banks pose challanges to banks in the coming years. There are 130,000 mortgage debtors who have fallen behind payment for more than 90 days and their situation remains to be solved, he said.
The low interest rates go hand in hand with lower risk costs, said OTP Bank deputy-CEO László Bencsik at the conference. "We will see low-risk portfolios in coming years which means lower risk costs can compensate in part for the lower interest income, he said, adding that he expected a turnaround in corporate and consumer lending, and expected mortgage lending to expand dynamically.
Head of the Hungarian Banking Association and chairman-CEO of UniCredit Bank Mihály Patai hailed the central bank's rate cuts. Banks need to realise that domestic consumption is increasingly becoming a driving force in GDP growth, which is leading to a more healthy growth structure. UniCredit forecasts a 4% rise in consumer spending this year.
