The National Bank of Hungary (NBH) said commercial banks should impose stricter criteria for lending in HUF and FX. Monthly installments should not exceed 30% of net income in the case of HUF loans and 15% in the case of FX loans. The central bank is currently engaged in talks with commercial banks to work out a voluntary agreement. It added that it would ask the government to introduce new legislation if the talks failed to produce a result.
Our view
The proposal is coming after the horse has bolted the stable but better late than never. It is difficult to predict how the banks will respond but a voluntary agreement would be preferable to any form of government legislation in our opinion. On the other hand, the commercial banks will be wary of any attempt by the authorities to interfere directly with their business. However, the key to reducing the attractiveness of FX loans is lower HUF interest rates. FX loans will remain more attractive to borrowers while the interest rate differential remains substantial. To recollect, the NBH base rate currently stands at 9.5%, the ECB refi rate at 1% and Swiss National Bank 3-month CHF libor target range at 0.00-0.75%.