Household indebtedness and financial stability: Reasons to be afraid?
The dynamic increase in household indebtedness seen in Hungary in recent years has raised a number of questions relating to the risks of this growth and the long-term sustainability of banking portfolio quality. The continuous monitoring of risks is a task of the MNB, which stems from its supervisory role over financial stability. In order to explore the extent and structure of household indebtedness, the central bank conducted a questionnaire-based survey among indebted households in January 2007. In this article, we present the structural distribution and riskiness of indebted households as well as the effect of various unfavourable macroeconomic developments on banks’ portfolio quality and capital adequacy, based on the findings of the survey. Our findings suggest that the shock absorbing capacity of the banking sector is sufficient (i.e. the capital adequacy ratio of the banking system would not fall below the current regulatory minimum of 8 per cent) even if the most extreme stress scenarios were to occur.