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

Gábor Szigel () and Péter Fáykiss ()
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Gábor Szigel: Magyar Nemzeti Bank (central bank of Hungary)
Péter Fáykiss: Magyar Nemzeti Bank (central bank of Hungary)

MNB Bulletin (discontinued), 2012, vol. 7, issue 1, 27-42

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.

Keywords: credit boom; debt overhang; household indebtedness. (search for similar items in EconPapers)
JEL-codes: E29 F34 G21 (search for similar items in EconPapers)
Date: 2012
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