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

Author

Listed:
  • Gergely Fábián

    (Magyar Nemzeti Bank (central bank of Hungary))

  • András Hudecz

    (Magyar Nemzeti Bank (central bank of Hungary))

  • Gábor Szigel

    (Magyar Nemzeti Bank (central bank of Hungary))

Abstract

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.

Suggested Citation

  • Gergely Fábián & András Hudecz & Gábor Szigel, 2010. "Decline in corporate lending in Hungary and across the Central and East European region during the crisis," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 5(3), pages 17-28, October.
  • Handle: RePEc:mnb:bullet:v:5:y:2010:i:3:p:17-28
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    File URL: http://www.mnb.hu/letoltes/fabian-hudecz-szigel-en.pdf
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    References listed on IDEAS

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    1. repec:dgr:rugsom:08003 is not listed on IDEAS
    2. Lown, Cara & Morgan, Donald P., 2006. "The Credit Cycle and the Business Cycle: New Findings Using the Loan Officer Opinion Survey," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(6), pages 1575-1597, September.
    3. van Lelyveld, Iman & Knot, Klaas, 2009. "Do financial conglomerates create or destroy value? Evidence for the EU," Journal of Banking & Finance, Elsevier, vol. 33(12), pages 2312-2321, December.
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    Citations

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    Cited by:

    1. Fábián, Gergely & Fáykiss, Péter & Szigel, Gábor, 2012. "Toolkit for stimulating corporate lending," MPRA Paper 40336, University Library of Munich, Germany.
    2. András László, 2016. "Impact of the Funding for Growth Scheme on the Hungarian economy," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 15(4), pages 65-87.
    3. 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.

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    More about this item

    Keywords

    corporate lending; banking; CEE region; lending surveys; credit conditions; parent banks; corporate loan demand;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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