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Due to the pandemia the performance of the Hungarian economy has dropped in 2020, the country’s GDP growth was -4.1%. The Government and the Hungarian National Bank introduced massive fiscal and monetary measures for reviving the economic actors and revitalizing the economy. It is worth to note the payment moratoria that is the longest and most generous scheme over the European Union. The measures effectively supported a fairly rapid recovery from Q3.
Retail trade and other personal services were the fastest to recover in Q3, then industrial production and trade rebounded, the transportation sector’s performance improved as well except of the aviation, Even though some sectors suffered strong setbacks again due to the reinstatement of limitations in Q4, this was almost fully offset by a marked improvement in industry and construction. Even capital formation turned to increase in Q4 on a quarter-on-quarter basis. The unemployment increased by the mid of the year but stayed below 5% and dropped to 4.2% by year-end.
Starting from 4.7% at the beginning of 2020, inflation fluctuated from quarter to quarter; it decreased in Q1, rose in Q2, and went down again in Q3, and in Q4 finally it went to 2.8% staying below the target of the Hungarian Central Bank.
The cost of pandemic measures seriously increased the budget deficit over the year, it decreased to -16.7%, while the government debt reached over 80% again.
Due to various developments all over the year, the current balance of payments is expected to have improved slightly.
The value of the banking sector’s total balance sheet increased by 22.11% compared to the previous year.
The Hungarian banking sector consists of 41 institutions. Among them are 21 commercial banks, 8 foreign bank branches, five mortgage banks, four building societies, three specialised banks.
Under the circumstances of Covid-19 pandemic the Hungarian domestic instant payment system (HIPS) has been smoothly operated since its launch as of 2nd March 2020. In 2020 it has cleared and settled 94 million instant transactions amounted to 14.414 billion HUF and in the first quarter of 2021, 32 million transactions amounted to 4.7 billion HUF. The lion share i.e. 96% of transactions have been credited in the beneficiaries’ accounts in two seconds i.e. in a shorter period of time than the central bank’s decree requires, namely in five seconds. Since last September HIPS processes request to pay and normal credit transfer batches, as well.
The number of branches and employees in the banking sector practically did not change in 2020 i.e. there were slightly less than 2000 branches and with some hundreds more than 40 thousand employees in it. For the country’s population of 9.8 million in 2020, there were more than 10.4 million bank accounts, more than 9.8 million payment cards (out of which 9.1 million were contactless), 5 004 ATMs, 212 000 POS physical terminals plus almost 24 000 virtual ones.
Electronic payments increased dynamically in 2020 it accounted 1.5 billion payment transactions. The payment card accepting POS network’s already 98% support contactless card acceptance. In 2020 from the 1.5 billion electronic payments more than 1 billion were executed by payments cards. The number of transactions via internet were 38,5 million in value 20.5 billion HUF while the number of mobile payments were 11.6 million in value 1.4 billion HUF.
49,66 % of the banking sector’s total loan portfolio is provided to non-financial corporates, 34.3% to households and organisations closely linked to households and 16.29% to the foreign sector.
The deposit value of the banking sector – excluding interbank transactions – remarkably increased in 2020 (by 23.22%) in total, corporate and household contributed positively, altogether by 22.84%.
The financing of renewable energy projects usually depends on the visibility of the input-output side and the technology. Profitability typically depends on a feed-in-tariff system, which ensures a subsidized price for selling the produced electricity for a fixed period (mandatory takeover period). The banking sector needs a proven and precise technology, a stable and foreseeable regulatory environment, and professional investors.
The KÁT feed-in-tariff system in Hungary, which was available for ten years until 2017, was a calculable and reliable system supporting the financing of renewable projects and was very favourable for investors. However, in 2017 a new financial incentive scheme called METÁR was introduced that is a bit stricter, more competitive, and provides a tender-based price subsidy to investors in case of larger-scale projects. These days in Hungary, the primary trend is the hegemony of solar projects. The transition from KÁT Regime to METÁR generated a rush for KÁT licensing before its closure. More than 2,800 KÁT-eligible power plant licenses (over 2,000MW combined) had been submitted by the end of 2016. The most popular “product” was the solar power plant with 0.5 MW capacity under the KÁT with 25 years mandatory takeover period. About half of these projects will be developed and constructed in the next one to two years, and there is already a considerable financing need for these projects in the banking market.
From 2019 operating support (METÁR) can be allocated on tenders only. The first call for the METÁR tender was in September 2019. There was high competition with bids more than 2,5 times the allocable capacity. About 95 MW new capacity won support on the tender; winners got prices 20-30% lower than the previous administratively set tariffs. The second call was in July 2020. The competition was even higher with bids more than 5,5 times the allocable capacity, which brought another 21% price reduction in the bigger (> 1 MW) category. As a result, 210 MW new capacity won support on the second tender with an average supported price of 17,82 HUF/kWh. The third call was in April 2021; the deadline for the applications is 30 July 2021. Currently, 300 GWh/year renewable electricity can be supported. According to the Ministry for Innovation and Technology communication, calls will happen twice a year from 2021, and 300 – 500 GWh/year renewable electricity can be supported in each call.
The capital position of the Hungarian banking sector – including OTP group’s foreign affiliates – is stable. The CET 1 capital adequacy ratio (CAR) is over 16%, while the total CAR is at almost 19%.
In 2020, profits of the Hungarian institutions dropped as compared to 2019, before tax return on equity decreased from 11% to 4%.
Contributor: Gábor Schöner email@example.com