Hungary Household Lending Growth Slows In July 2008

Loans granted to the household sector fell in July - by HUF 36.1 billion to HUF 6,320.8 billion. Forint denominated loans were up by HUF 2.7 billion, while foreign currency loans fell by HUF 38.8 billion to HUF 3,703.7 billion. Exchange rate valuation effects reduced the value of foreign currency loans by HUF 156.2 billion (debt to banks are reduced in HUF terms due to the strengthening of the forint) while new transactions increased it by HUF 117.5 billion, central bank data showed.


Of total household loans 58.6% forex were 41.4% forint denominated.

The share of housing loans dropped fractionally from 51.8% to 51.7%, while the value of housing loans fell by HUF 23.9 billion. Foreign currency loans remained unchanged at 51.3% as a percentage of total outstanding housing loans.



Deposits with monetary financial institutions on the other hand were up by HUF 28.5 billion and reached HUF 6,377.9 billion. Forint denominated deposits dropped HUF 14.9 billion and foreign currency deposits rose by HUF 43.7 billion compared with June. Exchange rate changes and transactions, respectively, accounted for HUF 23.4 billion and HUF 67.1 billion for the change in the stock of foreign currency deposits.


Leaving aside the currency valuation effect, it is clear that the rate of increase in private credit expansion has slowed considerably. If we look at the chart for forex mortgage loans for consumption purposes, the level of these has been virtually stationary since January, after a twelve month period when they virtually doubled.




If we look at forex mortgage lending generally we see a similar picture, even if the rate of increase in 2007 was nothing like as rapid as in the case of consumption directed loans.





Again, if we look at total mortgage lending, it is obvious that there is more than forint valuation effects at work here. It seems to me there are signs of the impact of the credit crunch, whether this be due to tighter liquidity conditions on the banking side, or due to the pressure of interest rates on the consumer demand side.



The situation is of course reflected at the level of construction permits for new dwellings, which stood at 3,710 in Q1 2008 (down from 4,105 in Q1 2007) and 4,936 in Q2 (down from 5,318 in Q2 2007). And again more support is offered for the gradual credit crunch view from this statement in the last KSH report on building permits:

Holiday houses’ new constructions have shifted to the opposite direction as the building permits. Building permits’ number is by 26% higher, while that of newly built holiday houses by 30% less than last year. In the first half of 2008, 650 holiday units got building permits and only 200 units were built, with the average size of 66sqm.

That is, there are more people with permission to build, but less of them - for some reason - are building.