High housing price growth is risky for Hungarian banks

The strong growth of housing prices create risks of losses for Hungarian banks when the economy starts deteriorating, Moody’s said in its weekly outlook report. It pointed to Eurostat data, according to which housing prices in Hungary have increased by 55% since 2015 and by 14% y/y in June, the strongest rate among EU members. Bank loans to construction and real estate companies accounted for a significant 24% of gross corporate loans as of end-2018, the agency noted. The exposure to the property market is even higher, taking into account the expansion of mortgage lending, it added.

Asset quality in these segments is good due to previous clean-up efforts with the share of non-performing housing loans being 2.4% at end-2018, Moody’s said. The share of problematic commercial property loans has also declined to 11.3% at end-2018 from 47.5% at end-Q1’15. Housing and commercial property loans carry credit but also forex risks in the case of the commercial property loans, Moody’s said. It acknowledged that the National Bank of Hungary (NBH) as the supervision authority planned to amend the systemic risk buffer to include performing forex loans for commercial property projects as of 2020. The weight of these loans in the buffer calculation will be 5% initially in order not to discourage lending while the NBH’s move overall aims to prevent new systemic risks related to commercial property loans, Moody’s noted.

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