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

Author

Listed:
  • Gábor Szigel

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

  • Péter Fáykiss

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

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.

Suggested Citation

  • Gábor Szigel & Péter Fáykiss, 2012. "The effect of indebtedness on the financial and income position of Hungarian households," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 7(1), pages 27-42, February.
  • Handle: RePEc:mnb:bullet:v:7:y:2012:i:1:p:27-42
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    File URL: http://www.mnb.hu/letoltes/szigel-faykiss-eng.pdf
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    Citations

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    Cited by:

    1. 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.
    2. Mathias Lahnsteiner, 2013. "Private Sector Debt in CESEE EU Member States," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 30-47.
    3. 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.

    More about this item

    Keywords

    credit boom; debt overhang; household indebtedness.;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • E29 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Other

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