financial stability report – may 2014 balázs vonnák 22 may 2014
TRANSCRIPT
Financial Stability Report – May 2014
Balázs Vonnák
22 May 2014
Banks’ vulnerability decreased further, however, they still does not adequately support sustainable growth
Shock-absorbing capacity: Capital injections announced in 2014 improved capital position, while liquidity of the banking sector is also sufficient even in a stress scenario.
Procyclicality: Lending activity was stimulated markedly by the MNB’s Funding for Growth Scheme (FGS) and the policy rate cuts. However, market-based corporate lending is still restrained.
Magyar Nemzeti Bank 2
Commitment of parent banks plays an important role in the improvement of resilience
Financial stability heat map
Source: MNB.
3
Procyclicality Shock-absorbing capacity
November 2013
May 2014
May 2014
November 2013
Shock-absorbing capacity of the banking system is strong
4
The stress level in domestic financial markets remains low
System-wide Financial Stress Index (SWFSI)
Source: MNB.
5
-0,4-0,3-0,2-0,10,00,10,20,30,40,50,60,70,80,91,0
-0,4-0,3-0,2-0,10,00,10,20,30,40,50,60,70,80,91,0
Jan-
07M
ar-0
7Ju
n-07
Sep-
07Dec
-07
Mar
-08
May
-08
Aug
-08
Nov
-08
Feb-
09M
ay-0
9Ju
l-09
Oct
-09
Jan-
10Apr
-10
Jun-
10Se
p-10
Dec
-10
Mar
-11
Jun-
11Aug
-11
Nov
-11
Feb-
12M
ay-1
2Aug
-12
Oct
-12
Jan-
13Apr
-13
Jul-
13O
ct-1
3Dec
-13
Mar
-14
SWFSI Correlation contribution (smoothed)
Liquidity position remains solid even under stress scenario
Liquidity Stress Index, and banks' liquidity surplus or deficit relative to the regulatory level in the stress scenario
Source: MNB.
6
-90-75-60-45-30-150153045607590
-2 400-2 000-1 600-1 200
-800-400
0400800
1 2001 6002 0002 400
Jan-
09M
arM
ay Jul
Sep
Nov
Jan-
10M
arM
ay Jul
Sep
Nov
Jan-
11M
arM
ay Jul
Sep
Nov
Jan-
12M
arM
ay Jul
Sep
Nov
Jan-
13M
arM
ay Jul
Sep
Nov
per centHUF Bn
Liquidity need to meet the regulatory requirementLiquidity buffer above the regulatory requirementLiquidity Stress Index (right-hand scale)
Decreasing vulnerability, but substantial outflow of external funds may continue to pose a considerable risk
Development of banking system's foreign funds and the loan to deposit ratio through the forecast horizon
Source: MNB.
7
10
40
70
100
130
160
190
0
5
10
15
20
25
30
Jun-
10
Sept
Dec
-11
Mar Jun
Sept
Dec
-12
Mar Jun
Sept
Dec
-13
Mar Jun
Sept
Dec
-14
Mar Jun
Sept
Dec
-15
per centEUR Bn
Foreign funds Baseline scenario Loan-to-deposit ratio (right-hand scale)
Despite significant losses, the banking system’s need for capital in stress scenario is minimal…
Solvency Stress Index
Source: MNB.
8
-10
0
10
20
30
40
-300
0
300
600
900
1 200
2005
Q1
Q2
Q3
Q4
2006
Q1
Q2
Q3
Q4
2007
Q1
Q2
Q3
Q4
2008
Q1
Q2
Q3
Q4
2009
Q1
Q2
Q3
Q4
2010
Q1
Q2
Q3
Q4
2011
Q1
Q2
Q3
Q4
2012
Q1
Q2
Q3
Q4
2013
Q1
Q2
Q3
Q4
per centHUF Bn
Capital need to meet regulatory requirementCapital buffer above the regulatory requirementSolvency Stress Index (RHS)
…due to capital injections carried out this year
Capital injections in the banking system
Source: MNB.
9
0
50
100
150
200
250
300
350
400
0
50
100
150
200
250
300
350
400
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Q1
HUF BnHUF Bn
Capital injections Parent bank fund forgiveness
Although average capital adequacy is solid, the aggregate indicator conceals significant heterogeneity
Distribution of the capital adequacy ratio based on the number of banks
Source: MNB.
10
0
4
8
12
16
20
24
28
32
36
40
0
4
8
12
16
20
24
28
32
36
40
End of first year End of second year End of first year End of second year
per centper cent
Capital adequacy ratio of banking sector
Minimum regulatory capital requirement
Stress scenarioBaseline scenario
Lending does not adequately support economic growth
11
Positive turnaround in corporate lending in the second half of 2013, mainly due to the FGS
Forecast of lending to non-financial corporations (transaction-based, y-o-y data)
Source: MNB.
12
-8-7-6-5-4-3-2-1012345
-8-7-6-5-4-3-2-1012345
2011
Q1
Q2
Q3
Q4
2012
Q1
Q2
Q3
Q4
2013
Q1
Q2
Q3
Q4
2014
Q1
Q2
Q3
Q4
2015
Q1
Q2
Q3
Q4
2016
Q1
per centper cent
Fact - total corp. Forecast - total corp. (prior to FGS)Forecast - total corp. (new) Fact - SME Forecast - SME (prior to FGS) Forecast - SME (new)
Utilization of the second phase of FGS is proportionally higher than in the first
The diagram on the right shows the utilization of the credit line in percentage (Credit line of the first phase: HUF 750 billion, Credit line of the second phase:
HUF 500 billion)
Source: MNB.
13
0
100
200
300
400
500
600
700
800
0
100
200
300
400
500
600
700
800
FGS, first phase FGS, second phase
billion HUF billion HUF
0
10
20
30
40
50
60
70
80
90
100
0
10
20
30
40
50
60
70
80
90
100
FGS, first phase FGS, second phase
per cent per cent
While the utilization of new investment loans is even higher
Utilization of new loans in terms of time proportionality
Source: MNB.
14
Utilization of new investment loans in terms of time proportionality
0
50
100
150
200
250
300
350
0
50
100
150
200
250
300
350
FGS, first phase FGS, second phase
billion HUF billion HUF
0
30
60
90
120
150
180
210
0
30
60
90
120
150
180
210
FGS, first phase FGS, second phase
billion HUF billion HUF
But rebound in market-based lending is needed as well for supporting sustainable economic growth
15
Changes in credit conditions and factors contributing to the changes in the corporate segment
Source: MNB, based on banks' responses.
Note: Net percentage balance of respondents tightening/easing credit conditions weighted by market share.
-80
-60
-40
-20
0
20
40
60
80
100
-80
-60
-40
-20
0
20
40
60
80
100
2008
H2
2009
Q1
Q2
Q3
Q4
2010
Q1
Q2
Q3
Q4
2011
Q1
Q2
Q3
Q4
2012
Q1
Q2
Q3
Q4
2013
Q1
Q2
Q3
Q4
2014
H1
(e.)
per centper cent
Capital position Liquidity positionEconomic outlook Industry-specific outlookRisk tolerance Market share goalsChanges in credit conditions
Tigh
teni
ngEa
sing
Increase in Household lending, which may be prudent by regulating LTV/PTI standards
16Source: MNB.
New disbursements in the Household segment
0
100
200
300
400
500
600
700
0
100
200
300
400
500
600
700
2008
Q1
Q3
2009
Q1
Q3
2010
Q1
Q3
2011
Q1
Q3
2012
Q1
Q3
2013
Q1
Q3
2014
Q1
Q3
2015
Q1
Q3
2016
Q1
HUF BnHUF Bn
Confidence band New disbursements Refinancing for early repayments
Measures of the MNB are aimed at mitigating vulnerability by changing asset composition of banks
Preferred directions in the change in banking sector asset structure and steps supporting them
Source: MNB.
17
Measures
SME lending is increasing FGS pillar I
Contraction in loans to companies without natural hedge
FGS pillar II
Household lending increases, risk of imprudent lending may increase
LTV, PTI regulation may contribute to more sound lending practices
FX household debt is shrinking, risks are decreasing
Government, Supreme court decision
Household NPLs is decreasingNational Asset Management Agency
mitigates the problem
Corporate NPLs is decreasingRegulatory steps are needed to boost
portfolio-cleaning
The volume of 2-week central bank instruments is decreasing
Government securities holdings are increasing
Asset side of banks
Loan
s Pr
oble
m/ r
isky
loan
sLi
quid
ass
ets
Self-financing concept gives incentives
The sluggish portfolio cleaning of corporate loans is a significant macroprudential risk
18
In the case of corporate loans, quality improvement and portfolio cleaning decreased the NPL ratio by the end of 2013
Share of non-performing corporate loans of the banking sector by customers
Source: MNB.
19
0
2
4
6
8
10
12
14
16
18
20
22
0
2
4
6
8
10
12
14
16
18
20
22
2007
Q1
Q2
Q3
Q4
2008
Q1
Q2
Q3
Q4
2009
Q1
Q2
Q3
Q4
2010
Q1
Q2
Q3
Q4
2011
Q1
Q2
Q3
Q4
2012
Q1
Q2
Q3
Q4
2013
Q1
Q2
Q3
Q4
per centper cent
30-90 days delinquency 90+ days delinquency ratio
Movements in the cleaning component may be mostly accounted for one-off effects
Factors affecting changes in the ratio of non-performing corporate loans in the banking sector
Source: MNB.
20
-2,5-2,0-1,5-1,0-0,50,00,51,01,52,02,53,03,54,0
-2,5-2,0-1,5-1,0-0,50,00,51,01,52,02,53,03,54,0
2010
Q1
Q2
Q3
Q4
2011
Q1
Q2
Q3
Q4
2012
Q1
Q2
Q3
Q4
2013
Q1
Q2
Q3
Q4
Stock component Portfolio cleaning componentPortfolio impairment component Change of NPL ratio
percentage point percentage point
The corporate NPL ratio is expected to stagnate
Ratio of non-performing loans and the cost of provisioning in the corporate segment
Source: MNB.
21
0
5
10
15
20
25
30
0
1
2
3
4
5
6
2007 2008 2009 2010 2011 2012 2013 2014 2015
per centper cent
Loan loss provisioningLoan loss provisioning - forecastNon-performing loan ratio (RHS)
Share of defaulted loans stuck for years within the non-performing portfolio is significant...
Distribution of corporate NPL according to time elapsed since becoming non-performing
Source: CCIS.
22
0
5
10
15
20
25
30
0
5
10
15
20
25
30
0-6 months
6-12 months
1-2 years 2-3 years 3-4 years 4-5 years Above 5 years
per centper cent
By number of contracts By outstanding amount
…in which the share of project loan portfolio is significant
Portfolio quality in the corporate segment
Source: MNB.23
0
5
10
15
20
25
30
0
5
10
15
20
25
30
2012
.I. II. III.
IV.
2013
.I. II. III.
IV.
per centper cent
Other corporate NPL/total coporate loansProject loans NPL/total coporate loansProject loans restructured/total project loans
High vacancy rate among commercial properties compared to other European markets
Vacancy rate and capital value of the office market in an international comparison
Source: Jones Lang LaSalle.
24
0
10
20
30
40
50
0
5
10
15
20
25
Hun
gary
Irela
nd
Net
herla
nds
Russ
ia
Czec
h Re
p.
Italy
Spai
n
Pola
nd
Belg
ium
Ger
man
y
Fran
ce
Uni
ted
King
dom
Luxe
mbo
urg
thous. EUR/m2per cent
Vacancy rate (2010 Q4)Vacancy rate (2013 Q4)Capital value (2013 Q4, RHS)
Portfolio cleaning: mid-term benefits may outweigh short-term costs
25
Released capital
Decreasing funding costs
Potential for increased loan loss provisioning
on the remaining stock
Improved liquidity
Decreasing risk of future losses
Released human
resources
Improving maturity
mismatch
Improving portfolio quaility Growing risk
appetite
Released liquidity
Increasing lending activity
Improving profitability
Low profitability may lead to consolidation in the banking sector
26
Domestic banking sector continues to becharacterised by weak profitability
Return on equity in an international comparison
Source: EKB CBD.
27
-15
-10
-5
0
5
10
15
20
25
30
-15
-10
-5
0
5
10
15
20
25
30
2007 2008 2009 2010 2011 2012 2013 H1
Hungary
per cent per cent
Persistently weak profitability hampers lending in support of sustainable growth
• Deterioration in asset quality and weak profitability are endogenous.
Weak profitability
Deleveraging
Subdued portfolio quality
Deteriorating ability to attract funds and capital
Decreasing net incomes
Reluctance to realize further losses
Higher funding costsExternal
vulnerability Increasing loan losses
Source: MNB.
28
Subdued profitability poses risks to growth
Return on equity (2010-2013) and decline in the corporate loan portfolio (2013) by bank
Source: MNB.
29
-60
-50
-40
-30
-20
-10
0
10
20
-20 -15 -10 -5 0 5 10 15
Aver
age
ROE
(201
0-20
13, p
er c
ent)
Annual change of lending to corporations (YoY, per cent)
Persitently low profitability may lead to consolidation and a higher concentration of the banking sector
Cumulative net profits of profitable, unprofitable banks and the banking sector since 2008
Source: MNB.
30
-1500
-1000
-500
0
500
1000
1500
-1500
-1000
-500
0
500
1000
1500
2008 2009 2010 2011 2012 2013
HUF BnHUF Bn
Unprofitable banks Profitable banks Net profit after taxation
Increasing concentration in Household lending since the onset of the crisis
Herfindahl-Hirschmann-index based on new disbursements in each segment
Source: MNB.
31
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
Jan-
05M
ay-0
5Se
p-05
Jan-
06M
ay-0
6Se
p-06
Jan-
07M
ay-0
7Se
p-07
Jan-
08M
ay-0
8Se
p-08
Jan-
09M
ay-0
9Se
p-09
Jan-
10M
ay-1
0Se
p-10
Jan-
11M
ay-1
1Se
p-11
Jan-
12M
ay-1
2Se
p-12
Jan-
13M
ay-1
3Se
p-13
Jan-
14
Housing loans Unsecured loans Home Equity loans
Thank you for your attention!
32