Page 42 - CE Outlook Regions 2024

3.3.2 Banks
The Hungarian banking system remained resilient to shocks and the sector's capital adequacy would ensure stability even in the case of a "severe stress scenario”, according to a central bank report. Lenders generated a record HUF978bn (€2.55bn) profit in H1, which includes the stellar performance of OTP’s foreign units. The bulk of the improvement in net earnings was attributed to the high interest rate environment – as the MNB paid commercial banks 18% on deposits before it began its easing cycle – and the release of provisions. Return on equity (ROE) of local banks rose to 22% in Q2 from 16% in Q1, while ROA increased from 1.5% to 2.4%.
Banks' massive profits came in the face of a challenging regulatory landscape, expected to remain in 2024. Lenders paid HUF77bn in bank tax, HUF226bn in windfall tax and the interest rate caps on corporate and retail loans set them back HUF56.1bn. The Banking Association warned of the dire impact of the extension of the windfall tax in 2024 and the 13% social contribution tax on gains on investments in effect from July 1. Lenders can cut their payments by up to half if they increase purchases of local government bonds.
Market-based lending contracted sharply in 2023 due to the high-interest rate environment; mortgage loans fell by a half. Lower borrowing costs and the government’s pressure on banks to stimulate lending to restore growth are expected to boost demand for credit in 2024. The cabinet expects a credit-fuelled economic recovery as credit penetration per GDP in both the retail and corporate segments is well below the EU average.
3.3.3 Industry
Growth in Hungary’s vehicle industry, representing a 25-30% weight of total manufacturing, offset the decline of companies producing mainly for the local market. Industrial investments remain steady, boosting manufacturing capacities.
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