Refund moratorium: the government decides the fate of hundreds of thousands of Hungarians

Something is being done

Tomorrow morning, the economic operation will decide on the future of the loan payment moratorium, Viktor Orbán said on Friday’s morning show on Kossuth Radio. The Prime Minister added: the government has discussed various proposals, a decision may be tomorrow morning. Previously, Minister Gergely Gulyás and several representatives of the Hungarian banking sector told the press that negotiations were underway between the Hungarian Banking Association and the government on a possible extension of the moratorium, which in principle expires on December 31, 2020. It’s easy to imagine that the government would help small and medium-sized businesses, which appear to be most at risk, with an extension, as the minister noted in July if negotiations could offer additional discounts or a partial moratorium specifically for businesses next year.

Who suggests what?

The government itself has not yet taken a clear position on this, but the MNB has proposed a specific solution that targets vulnerable debtors after the payment moratorium expires. It is important that there is a transparent and easy-to-apply temporary and incentive solution (which minimizes moral hazard). This could be the maintenance of the interest payment obligation or the scheduled repayment of full repayments – Gergely Fábián, Managing Director, explained the position of the MNB at the Portfolio Hybrid Lending 2020 conference on Tuesday.

At the same event, Ádám Balog, president and CEO of MKB Bank, said about the possible expansion, the clientele that needs the moratorium should be sought, and this can be seen in the case of SMEs and the general public. According to Jelasity Radován, president and CEO of Erste Bank, banks already know what revenues have fallen, what deposits have risen, and are likely misplaced. A focused and filtered solution is needed in 2021, and the banks themselves will do their best to offer a unique solution to their customers in need. According to him, after the expiration of the payment moratorium, all banks will be ready to offer their troubled clients an additional partial moratorium, debt rescheduling, debt consolidation. The biggest fear of József Vida, president and CEO of Takarékbank, is that if he does not have to pay the loan for a year, many people may think why they should pay it.

We also asked the conference audience if there should be an extension and, if so, what it would be like. According to the public vote, only 14% of those who come mainly from the banking sector voted to extend the moratorium for everyone, 42% would apply some type of selective solution and 44% would end the repayment moratorium before 31 December December.

How much are they involved and how much does it help?

By the way, the moratorium is of great help to Hungarian debtors: this year it will leave around HUF 2 billion in the coffers of households and businesses. The proportion of loans affected by the default is between 40 and 50 per cent for both households and companies; according to the MNB, the proportion is higher. This is not a coincidence: while households have the lowest average personal loans, businesses have the highest proportion of those living with a moratorium among microenterprises.

The moratorium will also slow down the repayment of bank loans and increase the deposit holdings and savings capacity of those involved. Regarding the Portfolio issue, yesterday’s MNB press conference revealed that the annual dynamics of the corporate loan portfolio without the repayment moratorium would have been approximately half of the 8.4% annual registered between mid-2019 and mid 2020 (9.3% for SMEs); In the case of households, on the other hand, it would have been only 2-3 percentage points lower than the 20% observed, mainly due to the launch of the very popular Baby Waiting Loan, which already has almost 100,000 contracts, in July of last year.

A special Hungarian solution

By the way, the Hungarian loan repayment moratorium introduced on March 19, 2020 is one of the payment facilitation solutions, if not the most generous, for customers in Europe, based on all its parameters, which was introduced due to the coronavirus crisis, namely:

• general, which covers all debtors of credit institutions,
• Unlike many other countries, it will not last 3 or 6 months, but until the end of 2020 (already in the first round),
• not those who wanted to participate (opt-in) but those who wanted to opt out (opt-out) had to submit a request to the banks,
• covers the payment of principal, interest and commissions,
• banks cannot charge interest on deferred installments,
• As a result of the moratorium, the fee may not increase, only the term will be extended.

Gergely Fabián’s presentation on Tuesday in early September shows that the moratorium that was in place in many countries has already expired, but some of them are probably considering reintroducing themselves.

What can happen after unlocking it?

The government’s biggest problem and biggest dilemma is possibly how difficult it is to predict what will happen when the payment moratorium ends, as some debtors are obviously struggling with deteriorating ability to pay due to the coronavirus crisis.

Most of the participants in our Lending 2020 conference believe that the proportion of non-performing loans in the banking sector may be higher than the current 4% in mid-2021, but will not reach 8% if the moratorium ends at the end of the year according to the actual position. Some central bank analyzes have also put the proportion of vulnerable debtors working in vulnerable sectors (eg tourism, hospitality) or working for companies significantly affected by the crisis in recent months.

It is difficult to say, as the trajectory of the epidemic should be known, if the short-term deferral of massive loan defaults (i.e. the prolongation) also means the minimization of bankruptcy rates in the medium and long term (if so , for which debtors). the latter is worth striving for.

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