Experiences of Debt Cap Regulations in Hungarian Retail Lending

Péter Fáykiss (), Alexandr Palicz (), János Szakács () and Márton Zsigó ()
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Péter Fáykiss: Magyar Nemzeti Bank
Alexandr Palicz: Magyar Nemzeti Bank
János Szakács: Magyar Nemzeti Bank
Márton Zsigó: Magyar Nemzeti Bank

Financial and Economic Review, 2018, vol. 17, issue 1, 34-61

Abstract: The 2008 financial crisis underlined that, on the one hand, the operation of the banking sector is highly procyclical and, on the other hand, household borrowers are unable to assess their long-term ability to repay realistically. The resultant excessive risk-taking and inadequate risk assessment by banks brought, in Hungary as well, substantial losses for banks and a high rate of distressed customers. Through the enforcement of debt cap rules, the MNB as a macroprudential authority has been limiting the recurrence of excessive household indebtedness in a preventive manner since 2015. Focusing on international practices and the results of Hungarian regulations in the first two and a half years, we reviewed the Hungarian experiences with regard to the debt cap rules. Although we can only draw preliminary conclusions due to the shortness of the period elapsed since the introduction of the debt cap rules, our analysis demonstrates that, in line with their calibration, Hungarian debt cap rules currently do not restrict sustainable lending processes, and contribute significantly to promoting a healthy lending structure by restraining excessively risky loans.

Keywords: financial stability; housing market overheatedness; excessive lending; macroprudential policy; debt cap rules; loan-to-value ratio; payment-to-income ratio (search for similar items in EconPapers)
JEL-codes: E32 E58 G21 R31 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (4)

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