BUDAPEST: Hungarian commercial banks should sharply cut mortgage interest rate spreads which have remained high even though central bank interest rates have fallen to record lows, central bank Deputy Governor Marton Nagy said on Tuesday.
The central bank expects commercial banks to cut the spreads to what he said were Central Europe’s more customary level of 250-300 basis points from the current 450-500 basis points. Nagy had already said last month that the central bank would start talks with banks about measures to reduce the cost of housing loans.
The country’s banks were hit hard by policies Prime Minister Viktor Orban introduced after he came to power in 2010, which included a big windfall tax on banks and a drive to reduce foreign ownership of Hungarian banks.
But after a landmark agreement in February 2015 in which the government agreed to cut the bank tax and improve cooperation with the industry, lenders turned a corner and they are expected to be profitable this year.
Nagy said the central bank was not worried that the volume of lending in the economy would drop when the central bank ends its lending-for-growth programme.
Commercial banks are likely to replace the cheap central-bank-funded lending facility with their own products, even though the average maturity of those new loans may be shorter than it should be, Nagy said.
