Decline in corporate lending in Hungary and across the Central and East European region during the crisis

Escalation of the global financial crisis in autumn 2008 ended the economic boom in the Central and East European region, which had been financed by external funds and accompanied by dynamic expansion in credit. During the recession, corporate loan portfolios started to decline in nearly all countries in the region. The question arises as to what role banks played in this process: by restraining their credit supply, did they contribute to the deepening of the economic recession and to a slower-thannecessary recovery, or has the contraction in corporate lending resulted from shrinking corporate credit demand caused by the recession? The question is of particular relevance to Hungary, which recorded the steepest decline in corporate lending in the region. In this article, we look at 9 countries1 in Central and Eastern Europe and the Baltic States to provide a comparative presentation of developments in corporate lending and interest rates across the region and explore the reasons behind the differences observed. Available information appears to support the assumption that in Hungary – as well as in the Baltic States – the tightening of credit supply may have contributed more to the decline in corporate lending than in other countries of the region. This can be attributed primarily to Hungary’s reliance on external funds and vulnerability. At the same time, these results should be interpreted with the utmost caution for a variety of reasons. On the one hand, caution is called for because of the weakness of the analytical framework applied, as well as due to the limited reliability of the underlying data. On the other hand, the CEE region is far from homogeneous: the economic structure and development path of individual countries reveal more differences than similarities, rendering the comparison of certain aspects of the developments rather difficult.