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The effect of indebtedness on the financial and income position of Hungarian households

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Author Info

  • Gábor Szigel

    ()
    (Magyar Nemzeti Bank (central bank of Hungary))

  • Péter Fáykiss

    ()
    (Magyar Nemzeti Bank (central bank of Hungary))

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    Abstract

    During the credit boom prior to 2008, a substantial quantity of cash flowed from the banking sector to Hungarian households. With the emergence of the crisis, however, the direction of the cash flow has reversed, due to a net lending related factor and an income-related factor. First, in terms of the net lending, households turned from net borrowers to net repayers. But there is a second, less often analysed, income-related aspect of the process: the volume of interest payable by households has also increased as a result of the strong growth of credit in the pre-crisis years. This was further aggravated by the effect of the depreciation of the forint on FX loans, and, to a lesser extent, by unilateral interest rate increases by banks after 2008. As a consequence, the net interest balance of households deteriorated significantly, reducing both their disposable income and consumption. As a further novel aspect of our analysis, we also carried out an EU-wide comparison of interest burden on households. This has revealed that although the ratio of (bank-related) household credit to GDP is relatively low in Hungary in comparison to other European countries, the related interest-to-GDP ratio is high.

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    Bibliographic Info

    Article provided by Magyar Nemzeti Bank (the central bank of Hungary) in its journal MNB Bulletin.

    Volume (Year): 7 (2012)
    Issue (Month): 1 (February)
    Pages: 27-42

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    Handle: RePEc:mnb:bullet:v:7:y:2012:i:1:p:27-42

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    Web page: http://www.mnb.hu/
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    Related research

    Keywords: credit boom; debt overhang; household indebtedness.;

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    Cited by:
    1. Mónika Pitz & Zoltán Schepp, 2013. "Determinants of the Pricing of Bank Loans: a Structural VAR Based analysis," Public Finance Quarterly, State Audit Office of Hungary, vol. 58(4), pages 420-433.
    2. Szabolcs Szikszai & Tamás Badics & Csilla Raffai & Zsolt Stenger & András Tóthmihály, 2013. "Studies in Financial Systems No 8 Hungary," FESSUD studies fstudy08, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    3. Mathias Lahnsteiner, 2013. "Private Sector Debt in CESEE EU Member States," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 3.

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