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Banking

State-backed lending buoys Hungary’s banks

Strong fundamentals, generous Covid support and timely digital banking regulation mean that Hungary’s banks are in good shape for 2021.

Aerial view from Budapest
Zsolt Hlinka/Getty Images

What will happen to Hungary’s banks when Covid support measures come to an end?

With the country set to be among the first in Europe to achieve mass vaccination (after Viktor Orban’s government broke ranks with the European Union to secure supplies from Russia and China), that is becoming an increasingly urgent question for bankers and analysts.

Hungary’s population has benefited from one of the largest and most comprehensive Covid support packages in Europe. Analysts at Standard & Poor’s estimate that total measures – including furlough schemes, wage subsidies and loan moratoriums – have equated to around 20% of GDP.

Several of these have affected the banking sector directly.

In March 2020, at the start of the pandemic, Hungarian policymakers joined their counterparts across the EU in implementing a moratorium on loan repayments.

Unusually, the scheme – which initially ran to the end of the year – required borrowers to opt out rather than in. It also banned banks from charging interest for the period of the moratorium and from increasing monthly payments once it ended, as well as capping interest rates on consumer loans.

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