Refund moratorium: no effervescence after the latest announcement by Viktor Orbán

Refund moratorium: general extension rather than directed

“We will extend the moratorium on family and business loan payments unchanged for half a year until July 1. The moratorium will be extended automatically, only those who want to repay their loan despite the moratorium will have to visit their bank, “said the prime minister in his Facebook video on Saturday. The announcement means there will be no specific extension to the moratorium: the 2020 CVII, released in late October. by law, it was for children, retirees, public employees and job seekers to live with him. Businesses would have been subject to separate regulation (we have pointed out many times, most recently here that banks and businesses are already eager for this), this has now become obsolete before it ever appeared. We know that the general extension of the moratorium will be a purely political decision, due to the emergency, in the form of a government decree within a day or two.

WHILE THE DETAILS HAVE NOT YET BEEN PUBLISHED, IT SEEMS THAT ONLY ALL THOSE WHO HAVE NOT DELIVERED UP TO NOW BUT WANT TO DELETE IN THE FUTURE (OPT-OUT). WHO DOES NOT WANT TO DELETE IN THE MIDDLE OF 2021 HAS NO THING.

So far, 41 percent of corporate loans and 57 percent of domestic loans have participated in the moratorium, Magyar Nemzeti Bank announced in late November in September. The ratio is higher in terms of number of units and population, given that the financial situation of smaller companies and households with smaller amounts is weaker, they are overrepresented among users. If the selective extension announced in September and approved in October had been maintained, the September calculations of the MNB published in the Portfolio would have reduced the possibility of a default in the first half of 2021 to 26 percent of retail loans and from 13 to 16 percent of corporate loans. This calculation has now become obsolete, leaving the rate at 100 percent.

The use of the moratorium is optional: it may increase in the event of a deterioration in the financial environment, but the proportion of loans in the moratorium may decrease compared to the aforementioned 41 and 57 percent, respectively, due to customer withdrawal (see below). We expect this latter effect to be stronger, as the six-month extension may be considered excessive by many.

Shadow pages for banks

• Moral hazardThe longer a moratorium lasts, the greater the risk that some clients will feel disadvantaged in the long term or will default on the loan. Many may even forget it: they simply do not give enough importance to the debt service obligation in their long-term financial planning, or they do not give it enough importance. For banks, this predicts some deterioration in the quality of their loan portfolios and an increase in credit losses from mid-2021. Certainly, however, not until then, that is, it is about postponing the problem of deficiency.
• Financial risk– The moratorium can be considered to work financially for banks in the first half of 2021 as it did in 2020, that is, interest income on delinquent loans can also be recognized as income this year, but no interest can be charged on function of the deferral of the actual receipt. This lagging performance caused a loss of tens of billions of guilders to banks in 2020 (according to early estimates 50 billion, the updated number is not known), and in 2021 they may be prepared for a smaller factor, but still harmful.
• Accounting risk: According to the guidelines issued by the European Banking Authority (EBA) on December 2, 2020, banks must reserve a provision for loans that are subject to a moratorium for more than 9 months. Therefore, although the loans involved will not actually be past due, they will have to start provisioning, and in 2021 this could even have a significant effect on destroying profitability. To what extent, this may also depend on the expectations of the Magyar Nemzeti Bank in this regard, which also takes into account the guidelines of the European Banking Authority. Incidentally, this risk can affect mainly the year 2021, also the first half of it, since after the expiration of the moratoriums, the banks will be able to reverse the deteriorations in some schedule.
• Administrative and IT risk: For many weeks, banks agreed with the government in October and November how to verify applicants’ eligibility for a moratorium extension and how they could request the necessary information. The tasks and information related to document and data management have completed important capabilities in banks in recent weeks, but now they have to inform their clients that all this is irrelevant. In 2021, banks will face a similar but different kind of challenge: since they will still be able to choose to exit the moratorium, this will not be easy to handle, as it has not been this year: the large number of bank failures that we have heard and experienced. indicates.
• Liquidity risk: unpaid installments do not flow to banks. What we estimate will be between HUF 1 and 15 billion in savings for retail and corporate borrowers in the first half of 2021, will emerge as a liquidity shortage in banks. However, this seems to be the least risk: since the spring, the MNB has been helping banks manage liquidity smoothly and smoothly, with overdue installments that are temporarily replaced and, when necessary, with central bank funds. , while customer deposits are at an all-time high. liquidity.

Shadow pages for debtors

The general secretary of the Hungarian Banking Association issued a cautious and diplomatic statement on Saturday stating that those who do not need a repayment moratorium should consider whether they will remain in 2021. In light of our list above, this is perfectly understandable for banks, but at the same time, customers should think about it. Staying in the default can have very undesirable consequences for the expected term of the loan.

IN THE ECONOMIC SENSE (CURRENT VALUE) IT IS ALWAYS WORTH REMAINING IN THE MORATORIUM, BECAUSE THE NOMINAL AMOUNT OF THE REIMBURSEMENT OBLIGATION IS ONLY A CHARGE. THE RETURN DETAIL CANNOT GROW THROUGH THE MORATORY BUT THE RUN TIME IS VERY EXCELLENT.

Previously, we presented the expected effects through three examples, a mortgage loan, a personal loan and an investment loan for SMEs. Any loan that is included in the moratorium through June 30 is likely to have a maturity of no more than 15 months, but some months even longer, for a total of up to two full years. In addition, the variation between individual loans can be very large, so staying in the moratorium is recommended primarily for those who are in financial difficulties or for whom a significant extension of the term is not an unacceptable risk.