Hungarian Borrowers Struggle with Repayment, Despite Low Loan Default Rate

Published: November 21 2023

Despite the low loan default rate in Hungary, borrowers are facing repayment struggles due to the economic impact of the COVID-19 pandemic. This has led to a decrease in the number of loan contracts and financing amounts for both individuals and businesses. The housing loan market has been particularly affected, with a significant decline in contract volumes. However, there are optimistic signs of improvement in payment discipline among borrowers.

The Hungarian loan market has been at a multi-year low, with the loan index standing at 74% in the second quarter, far below the projected 87% for 2022. Both individuals and businesses have experienced a decrease in the number of loan contracts and financing amounts compared to the same period last year. The housing loan market has been hit the hardest, with a 57% decrease in loan amounts, attributed to the decline in housing loans.

While there has been a slight decrease in interest rates in the forint loan market and an expected further easing of inflation in the coming months, the demand for loans is still slow. The real estate market is currently sluggish, and loan uptake is primarily seen for financing living expenses. Government-supported loan programs continue to mitigate the decline in loans for businesses.

Over the past few years, the payment discipline of borrowers in the loan market has gradually improved. COVID-related payment moratoriums played a role in this improvement, as borrowers were not required to make loan payments during that period. Despite the end of these moratoriums, there has not been a significant increase in loan delinquencies. In fact, the ratio of underperforming contracts has decreased compared to the base year of 2019, according to the BISZ Performance Index.

The BISZ Behavioral Index provides insights into the payment behavior and ability of borrowers to fulfill their loan obligations. The index takes into account factors such as timely payment, prepayment, and contract fulfillment. The residential behavioral index has shown improvement in the second quarter, indicating that borrowers have been cautious in taking on new loans due to high inflation and interest rates. However, personal loans remain the most problematic among individuals, while vehicle leasing contracts make up a significant percentage of underperforming contracts for businesses.

While the Hungarian loan market has been experiencing challenges, there are positive indicators such as improved payment discipline among borrowers. The housing loan market has been highly affected, but government-supported loan programs continue to provide some relief for businesses. As the economy recovers, it is hopeful that the loan market will regain momentum in the coming months. Borrowers should continue to exercise caution and assess their repayment abilities when considering new loans.

What is the current state of lending in Hungary? The lending market in Hungary has been at a multi-year low. The number of loan agreements and the total amount of financing have decreased compared to the previous year.

What is the default rate on loans in Hungary? Despite the end of the loan moratorium, the default rate on loans remained favorable in the first half of the year.

Which types of loans are the most problematic for individuals in Hungary? Personal loans are the most problematic for individuals in Hungary.

Which types of loans are the most problematic for businesses in Hungary? Vehicle leasing is the most problematic type of loan for businesses in Hungary.

Has there been a decrease in the demand for housing loans in Hungary? Yes, there has been a significant decrease in the demand for housing loans in Hungary, leading to a decrease in the total amount of housing loans.

Are there any government-supported loan programs in Hungary? Yes, government-supported loan programs continue to mitigate the decrease in lending for businesses in Hungary.

Has there been an improvement in payment discipline among borrowers in Hungary? Yes, payment discipline among borrowers in Hungary has gradually improved in recent years.

What factors contributed to the improvement in payment discipline? Factors such as the COVID-related loan moratoriums and the favorable impact of variable interest rate mortgage loans have contributed to the improvement in payment discipline among borrowers in Hungary.

What percentage of problematic transactions are accounted for by personal loans? Personal loans account for approximately 60% of the problematic transactions among individuals in Hungary.

What types of loans account for the majority of problematic contracts among businesses in Hungary? Vehicle leasing accounts for 42% of problematic contracts among businesses in Hungary.

What does the Behavior Index indicate about borrowers in Hungary? The Behavior Index reflects the payment behavior and repayment capability of borrowers. It takes into account factors such as timely payment, early or late fulfillment of contracts, and contract fulfillment until the expiration date. A higher index value indicates poorer payment behavior.