Business loans: the subsidised product takes all

It was undoubtedly the Central Bank of Hungary’s (MNB) Lending for Growth (NHP) programme that generated the biggest upturn in the corporate lending market after the middle of 2013. The programme not only made more businesses take out loans but also meant a step forward in terms of ‘communication’ as other subsidised programmes also receive more attention. The end of 2014 will bring the end of the NHP scheme’s second phase too, but commercial banks are hopeful that the programme will continue. At the moment it can’t be told what will happen with the Lending for Growth programme but it has already been decided that Hungary’s funding from the European Union will amount to HUF 7,480 billion (calculated with the country’s co-financing) and 60 percent of this will be spent on the development of enterprises. Gergő Soltész, the CEO of FHB Bank told our magazine that in NHP’s second phase the proportion of more complex investments was higher than in the first one. There were also more opportunities for financing smaller deals as banks’ schedule wasn’t so tight. According to Péter Hodina, corporate relations director of K&H in the next twelve months businesses plan to realise investments in the domains of capacity expansion (29 percent) and technological development (20 percent). These take much more time to prepare for than paying off earlier loans that characterised the first phase of NHP. Dr Gábor Tamás, corporate business development director of UniCredit Bank Hungary Zrt. informed that the number and volume of loan contracts signed has been growing since October 2013. The fact that the conditions became less strict and the strong marketing activity behind NHP have made more companies apply for the loan. Most banks reported that in the first phase companies typically paid off earlier loans and took out working capital loans, while in the second phase investment loans were the most popular. However, Tibor Csonka, managing director of OTP Business told Trade magazin that their customers acted the other way round: in the first phase they tended to apply for investment loans and subsidy pre-financing loans, and in the second phase they focused on paying off earlier loans. It must be noted that there can be big differences between various forms of NHP loans offered by banks. MNB data shows that agriculture’s share from NHP use was high and this share grew by 20.2 percent in March-June 2014 from the level of March-June 2013; in the same period food industry’s share from NHP loans augmented by 11.5 percent. At OTP agricultural enterprises took out nearly 60 percent of loans in the Lending for Growth scheme. FHB has signed a strategic agreement with the Hungarian Chamber of Agriculture (NAK), granting special discounted interest rates and loan products to chamber members in the NHP scheme. László Kálmán, the director of Erste Bank’s SME division agreed that agriculture is a good sector for granting loans while Zoltán Takács, head of commercial sales at Budapest Bank told our magazine that agriculture is a sector of strategic importance for them and they even set up a group of experts to serve agri-food businesses. He added that the changes in SAPS conditions as of next year may cause certain instability in the well-working sector. Not all businesses are granted the loans subsidised in the NHP scheme. For them products in the Széchenyi Card Programme can be the solution. László Krisán, the CEO of KAVOSZ Zrt. told us that in the last few years an annual HUF 140 billion worth of loans flowed into Hungary’s economy through the programme. Demand has been the greatest for the Széchenyi Card ‘classic’ current account loan, the sum of which is maximum HUF 25 million and can be used freely by SMEs. The maximum sum awarded in the Széchenyi Investment Loan scheme is HUF 50 million, with a maximum duration of 10 years. Products in the Széchenyi Card Programme are now available from 11 banks and conditions for granting it are standard. Eximbank’s Export Promoting Credit Programme (EHP) is another popular lending scheme. The advantage of these programmes is that there is no interest rate risk, as favourable interest rates are fixed for the duration of the loan. In banks’ portfolios there are still many problematic business loans. There are also many companies which would like to pay off earlier loans but aren’t eligible for using the NHP scheme. MNB’s plan is to improve the situation by creating the ‘bad bank’ concept: according to MNB’s estimation, a specialised financial institution could buy HUF 1,000 billion worth of overdue loans for about HUF 400 billion. For the time being it isn’t known who would finance this step and which loans and properties would make it into the programme.