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

Ákos Aczél (), Adam Banai, András Borsos () and Bálint Dancsik ()
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Ákos Aczél: Magyar Nemzeti Bank
András Borsos: PhD student at the Central European University
Bálint Dancsik: Magyar Nemzeti Bank

Financial and Economic Review, 2016, vol. 15, issue 4, 5–44

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.

Keywords: new loan contracts; housing loan; interest rate spread; spread (search for similar items in EconPapers)
JEL-codes: G02 G20 G21 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:mnb:finrev:v:15:y:2016:i:4:p:5-44

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