Hungarian banks expect lower demand for home loans after strong second quarter

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BUDAPEST, September 2 (Reuters)Loans to Hungarian households and businesses could be more subdued in the second half after still quite strong growth in the second quarter, the National Bank of Hungary said in its new loan survey published on Friday.

Outstanding loans to businesses and households increased by 15% and 11% respectively in the second quarter on an annual basis. However, banks have already tightened their housing lending standards during the period and they expect a further tightening of credit conditions by the end of 2022 due to the uncertain economic outlook, according to the survey.

The BNH indicated that 83% of banks expect a drop in demand for home loans in the second half of the year.

A sharp slowdown in retail sales and plummeting confidence indicators showed last month that the cost of living crisis has caught up with the eastern wing of Europe, where people are now facing a harsh reality as that stubborn double-digit inflation erodes their incomes while food prices rise top 15%-22% and energy costs soar.

This should weigh on new loans and also on portfolio quality, the BNH survey showed.

“The rising cost of living could put pressure on debt servicing, indicating a deterioration in portfolio quality,” he said in the survey.

Hungary’s central bank raised its key HUINT=ECI rate by 100 basis points to 11.75% on Tuesday and pledged to take further “decisive” measures to fight inflation while announcing further measures to tighten liquidity in forints on the interbank market.

The National Bank of Hungary, which became the first central bank in the European Union to start raising interest rates in June 2021, has raised its key rate by more than 1,000 basis points since then and further tightening will come even if the economy is expected to slow in the coming months.

(Reporting by Krisztina Than; Editing by Nick Macfie)

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