The ratio of non-performing loans (NPLs) at Hungarian households has not increased in the second quarter of 2013, the central bank (NBH) has reported on Thursday. At the end of June 18% of household loans were overdue by more than 90 days, but don’t let be decieved by assessing the situation exclusively in light of this and note that at mortgages the ratio went up to 18.3% by end-June from 17.6% at end-March and at the other loans the NPL ratio was pushed lower mostly because banks were selling their receivables.

At foreign currency home mortgages – a key product in the government’s relief package currently in the making – the NPL ratio rose to 21.2%, and the situation is even worse at home equity loans. It is not clear at this juncture whether the cabinet’s main idea is to lower the number of non-performing loans via the new measures, but it is definitely the reason why a package would need to be conceived in accordance with the banks, so that this compromise deal would not exacerbate the moral risk any further.

At the end of June Hungarian households owed banks HUF 6,597 billion, NBH data showed today. Of this sum, HUF 1,185 bn were overdue by more than 90 days, which marks a 4.5% decline over Q1. This decrease may be attributed primarily to the weakening of the Swiss franc during the April-June period. In the 12 months up to end-June the loan stock of households decreased by 5.8%, whereas their NPL ratio rose 4.1%. Meanwhile, the stock of loans overdue by less than 90 days dropped 6.4% yr/yr to HUF 1,103.

By the end of the second quarter the Swiss franc eased by 4.3% versus the HUF (to 239.14 from 249.96), but households’ DPD90+ ratio remained unchanged at 18%. The ratio of loans overdue by less than 90 days went down to 16.7% from 17.8%, which is definitely positive. This has contributed to raising the ratio of performing loans to 65.3% by end-June from 64.2% three months earlier.

The NPL ratios at the different retail loan types show great differences. You can see on the chart below how the volume of loans overdue by more than 90 days changed in these different loan types. The situation is the worst in the case of home equity mortgages. The NPL ratio at HUF-denominated home equity loans is up at 28.8% and the same ratio at FX home equity loans is 26.3%. The situation is better at home mortgages: the ratio is 16.5% at FX home mortgages and 14.8% at HUF loans. The most stable segment remains subsidised HUF loans where the NPL ratio is only 4.02%, reminiscent of pre-crisis times. It is most apparent that while the NPL ratio rose by more than two percentage points at mortgages, the NPL ratio at mortgages without collateral dropped by more than 1ppt over the base period. The main factor behind this is that the banks kept selling their unsecured receivables.

Thanks to the rescue programmes for distressed borrowers the rise in the NPL ratio at mortgages stopped in the autumn of 2012, but it picked up again in the winter and in the first half of 2013. The ratio (also due to the aforementioned slow portfolio cleaning) has been rising persistently without external interference. ; In the first six months of the year the NPL ratio went up both at FX-based home equity and housing loans rose despite the fact that participation in the fixed exchange rate scheme was open for the widest possible circle of those eligible as of September, which was designed to lower the monthly instalments (at a reduced fixed rate).

Non-performing loans are first overdue by less than 90 days. The rise in the ratio of the latter category can give us an indication as to how NPLs will turn out (or at least where they could peak). In this respect the second quarter of 2013 was slightly better than the preceding quarters since the ratio of loans overdue by less than 90 days also dropped to 16.7% from 17.8%.

The aforementioned data also include the restructured loans according to the respective time of delay in payment. The NBH has been publishing such breakdown for two years and this time these show that 13% (HUF 858 bn) of total household loans were restructured by the banks, which marks stagnation in annual terms. (This occurred less frequently last year, probably due to the capacity usage of the banks and other programmes, but mostly because of the exchange rate cap scheme.) Without this the banks’ NPL ratios would probably be a lot higher now, but a part of the restructurings is but a delay in the remedying of the problems. The latest data show that 46.4% of the restructured loans are overdue by more than 90 days and 25.8% of them are overdue by less than 90 days. The former number is much higher than three months earlier, whereas the latter declined q/q.

The NBH has lately been publishing details on what transactions affect the loan portfolios. As you can see on the charts below the portfolio cleaning activity of the banks remains extremely subdued, i.e. changes in the NPL ratio are primarily affected by disbursements and regular principal repayments (and to a smaller extent early repayments). Regarding unsecured loans the banks have turned more active – as we noted above – and this is another reason for the drop in the NPL ratio here. Demand for overdue receivables remains depressed compared to the size of the entire problem. In the second quarter, HUF 52 bn worth of problematic claims were sold.

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