April 18, 2018 / 10:27 AM / a year ago

UPDATE 1-Hungary needs faster growth in lending - central bank deputy gov

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BUDAPEST, April 18 (Reuters) - Hungary’s economy needs faster growth in lending to sustain its expansion, central bank deputy governor Marton Nagy said on Wednesday.

Nagy told a conference that corporate lending growth could rise by an annual 10 to 15 percent, while growth in household lending should be even faster, and this should go together with a further rise in wages.

“Lending, incomes and investments must rise in tandem, all three are necessary ... for sustainable convergence,” Nagy told a portfolio banking conference.

The National Bank of Hungary is one of eastern Europe’s most dovish central banks and has said its base interest rate will remain at a record low 0.9 percent until 2020. The bank wants to channel more and more housing loans to fixed-rate arrangements to make loans cheaper and stimulate lending.

Nagy said that for annual economic growth of more than 4 percent to be sustainable in the coming decade, corporate and household lending must both rise substantially.

Corporate loans could grow by an annual average rate of 12 percent until 2030, a central bank table showed, while household lending growth could pick up to 15 percent if the lending boom gathers speed.

In 2017 corporate lending grew 10.4 percent, according to the central bank’s March report, while the stock of housing loans grew by just 2.7 percent last year.

The annual average growth in housing loans could be even faster at 18 percent in the next 12 years, Nagy said.

“Indebtedness can grow if a wider circle of households take up loans, if interest rates on loans are fixed for a longer period, and loans are disbursed in forints,” Nagy said in a presentation.

He said there was no risk of companies or households becoming too indebted, as there was room for a lending boom with wages on the rise and with the level of indebtedness of households and companies still too low relative to GDP.

“If incomes keep pace with a rise in debt, then the latter does not pose a sustainability risk,” Nagy said.

He said the central bank was ready with tools to reduce any risks that may arise from a lending boom.

“We are facing a convergence story and it would be great if it did not run out of steam,” he said. (Reporting by Krisztina Than Editing by Robin Pomeroy and Hugh Lawson)

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