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Identifying the determinants of housing loan margins in the Hungarian banking system

Author

Listed:
  • Ákos Aczél

    (Magyar Nemzeti Bank)

  • Ádám Banai

    (Magyar Nemzeti Bank)

  • András Borsos

    (PhD student at the Central European University)

  • Bálint Dancsik

    (Magyar Nemzeti Bank)

Abstract

In recent years, the average spread on newly extended housing loans above the 3-month interbank interest rate has been consistently higher compared to spreads in neighbouring countries. This paper investigates the reasons behind it by using econometric tools and simple statistical examinations. In our two-step approach, we first identify the determinants of spreads based on Hungarian transaction-level and bank-level data, and then examine the Hungarian banking system’s sectoral performance relative to other European countries in the main determinants identified. Our findings reveal that the higher spreads currently mainly stem from the high proportion of products with initial rate fixation of over one year, the relatively large stock of non-performing loans, and credit losses. High operating costs in international comparison may also have an impact on the setting of spreads. According to our estimates, demand-side attributes also contribute to the emergence of high spreads, as does the low level of competition in certain regions.

Suggested Citation

  • Ákos Aczél & Ádám Banai & András Borsos & Bálint Dancsik, 2016. "Identifying the determinants of housing loan margins in the Hungarian banking system," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 15(4), pages 5-44.
    • Handle: RePEc:mnb:finrev:v:15:y:2016:i:4:p:5-44
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    new loan contracts; housing loan; interest rate spread; spread;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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