CEO of CIB Bank: less than 10 percent of Hungarian borrowers would actually have trouble paying their instalments

English2020. okt. 6.Harsányi Péter

The mortgage lending activity has almost returned to pre-epidemic levels. The placement of personal loans, on the other hand, has declined by 20 to 30 percent - said Pál Simák in an interview with Növekedé According to the Chairman and CEO of CIB Bank, the ability of Hungarian families to repay loans is better than that of regional households. He added that although most colleagues of headquarters still work from home, an order of 60 percent work from the office and 40 percent teleworking would ensure stable and sustainable operations.

In your opinion, how fast can Hungary and the Central and Eastern European region recover economically? How domestic GDP growth rate is expected to evolve this year and next?

Currently, this is the most important issue. We already hit a low point in Q2 both domestically and internationally. There was a swift rebound from the recession in Q3, but due to the coronavirus epidemic, momentum may slow down in Q4.

For Hungary, our baseline scenario foresees around 4.5 percent recession this year, followed by rebound around 4% next year and expectations to return to the 2019 levels by 2022. In my view, broadly similar evolution in economic indicators can be expected in all countries of the region.

What do you think about the Government’s proposal to extend the moratorium period on loan repayments in a selective manner? In your opinion, which social groups or businesses will avail of this option more? How much burden is imposed by this measure on the banking sector and, in particular, CIB Bank?

I believe that it is a good approach that the extension should not be available to all customers but only to a specific circle. However, there are still a lot of open questions about the proposal at this point and we are waiting for the publication of a government decree which sets out the details.

At CIB Bank, what percentage of customers has availed of the loan moratorium so far? 

A different percentage of customers avail of the moratorium in the corporate and the retail segment. Businesses have used this type of help to a much lesser extent.

At CIB Bank, out of the portfolio covered by the moratorium, 54 percent of retail customers chose not to opt out from the moratorium, while 31 percent of corporate customers is still under the moratorium.

In your opinion, how will lending activity develop this year and next? How much can retail and corporate loan portfolios grow?

During the pandemic, the corporate loan portfolio decreased by 2 percent in the Hungarian banking market. This is partly because more corporate customers opted out of the loan moratorium, and therefore, the proportion of those that continue to repay their existing loans is also higher. Concurrently, the amount of new loans declined.

CIB Bank’s situation is slightly more favourable. In our company, the SME loan portfolio increased by 2 percent and the large corporate loan portfolio by 4 percent.

We very much hope that the manufacturing industry will get through this difficult period and that the segment’s working capital loan portfolio will not decrease significantly. This is important to us because manufacturing companies have a higher than average percentage in our portfolio.

As a result of the crisis, investments dropped significantly, by 10 percent, in Q2, and consequently the demand for investment loans also fell substantially, which is also making itself felt at our bank.

The retail credit market continues to grow, since loan amortisation is lower due to a higher proportion of those who chose not to opt out of the moratorium. Nearly half of customers default on their loans.

In addition, lending activity has returned to the pre-epidemic levels in the case of certain products. As regards mortgage loans, currently, we are at 85-90 percent of the levels at the beginning of the year. Similar positive trends can be observed for the “Babaváró” (childbirth incentive) loan. The placement of personal loans, on the other hand, has declined by 20 to 30 percent. This is mostly explained by the increased uncertainty.

I expect the loan portfolio to expand further in the entire retail loan market, but the dynamic growth may slow down once the general moratorium expires at the end of the year.

What do you think of the so-called Certified Consumer-Friendly Personal Loans available from January 2021? Is CIB Bank developing such a product?

I believe that the launch of consumer-friendly personal loans is a good initiative, which could help a lot in enabling customers to compare the banks’ offerings in a transparent manner.

Of course, we also want to get certified; our personal loan product already meets 90 percent of the new criteria, be it in terms of pricing, credit scoring time or other parameters. At CIB Bank, customers can take out a personal loan with an interest rate as low as 6.9 percent (APR: 7.22).

According to your estimate, to what extent could defaulting loans increase from the end of 2020 after the expiry of the general moratorium period?

Basically, we do not expect a surge of defaulting loans at CIB Bank. For corporate customers, we do not see any factor that would significantly increase the proportion of overdue loans.

On the retail side, however, it is already much more difficult to make predictions. International comparisons show that in countries where debtors had to apply for a moratorium, the proportion of scheme participants is much lower. In Slovakia, for example, approximately 10 percent of retail customers are in such a difficult situation that they had to avail of a moratorium on loan repayments. In my opinion, the Hungarian population is in an even better position, i.e. less than 10 percent of borrowers would actually have trouble paying their instalments.

At CIB Bank, the ratio of loans overdue for more than 90 days is only 1.5 percent, while the defaulting loan portfolio of the entire bank is around 4 percent.

Therefore, we do not anticipate a substantial deterioration in the quality of the loan portfolio. And we will try to help the customers most in distress to get through this difficult period even after the moratorium.

If the pandemic continues for a long time, which economic sectors do you see as most at risk?

The most vulnerable sectors are those affected by restrictive measures. Businesses engaged in tourism, hospitality, arts and leisure activities are all in a difficult position. Manufacturing is also experiencing hardships due to declining global demand and disruptions in supply chains.

A quarter of CIB Bank’s corporate loan portfolio is linked to the manufacturing industry. We see that medium-sized and large enterprises operating in this economic sector have sufficient funds, and therefore can weather this crisis.

Uncertainty is greater among micro and small enterprises. Owing to the moratorium, however, most businesses can avoid insolvency.

How does the current difficult situation affect CIB’s provisions and profit figures?

The current situation certainly encourages banks to make additional provisioning. All in all, the level of provisions does not jeopardise CIB Bank’s profitability, although the magnitude of the profit is expected to be lower than in previous years.

To what extent has the pandemic affected CIB’s parent bank, Intesa Sanpaolo? What key plans does Italy’s largest banking group currently have?

Italy was the first European country to be hit hard by the pandemic. Intesa Sanpaolo acted quickly to provide safety for all employees and customers, enabling more than 90% of employees at the headquarters to work from home and, at the same time, ensuring the operational continuity of branches through new methods of opening. Many steps were taken to ensure liquidity to families and businesses.

Nonetheless, the Group’s financial performance during the first 6 months of the year was very strong. First-half net income was the best of the past 11 years and when adjusted for provisioning due to the pandemic, increased by 40 percent in one year.

Throughout this period, the Group continued with its offer to acquire UBI Banca, which was accepted by 90.2 percent of UBI’s shareholders. This transaction creates the Eurozone’s sixth largest banking group in terms of revenues, and the second in terms of market capitalisation.

All in all, Intesa Sanpaolo is an efficient group with a very solid capital position and high liquidity, and therefore, is able to cope with the challenges.

In what areas is stricter cost control expected? Does CIB Bank plan any layoffs?

No redundancies are planned due to the coronavirus.

CIB Bank has been operating with strict cost control since 2010. We have reduced our costs by more than 20 percent in ten years and have been able to reduce our expenses by 5 percent in the past one year, while the costs of other players in the banking market have increased by an average of 13 percent.

The proliferation of working from home provides an additional opportunity to cut infrastructure costs. In addition, ongoing structural transformations and digital developments can lead to a significant improvement of internal efficiency.

Which programs of the central bank were the greatest support to CIB Bank?

On the whole, the programs introduced have provided substantial support to both the sector and customers in overcoming the challenges posed by the epidemic. To highlight a few of them:

Reducing capital buffers increases the banks’ lending opportunities and financial institutions need to hold less reserves.

I also consider the moratorium on loan repayments to be a positive measure, which was partly initiated by the central bank.

And, of course, one of the most important initiatives is the Funding for Growth Scheme (FGS), which has two versions: Fix and “Hajrá” (the latter meaning Go!), and regarding which our goal is to achieve a market share of 6-7 percent. In my opinion, this is an extremely good product that helps maintain lending activity.

What experiences have you gained with the Funding for Growth Scheme “Hajrá” launched by the Central Bank of Hungary (MNB)?

FGS Hajrá is very popular among, and attractive to, SMEs. In the last six months, we have concluded contracts worth approximately HUF 30 billion. While previously the FGS FIX product could only be used for investments, the FGS Hajrá can also be used for working capital financing and loan conversion.

At the moment, it seems that a quarter of the FGS Hajrá loans are used by businesses to finance investments. Demand for investment loans will be more low-key in the short term. At the same time, the Funding for Growth Scheme plays a cardinal role in working capital financing and loan conversion.

Overall, I consider FGS Hajrá to be a successful product that will facilitate economic recovery.

To what extent is working from home likely to continue at the bank?

In March, with the appearance of the first wave of the epidemic, we switched to teleworking in a few days. The staff of almost all the departments working in our headquarters was able to work from home except for 150 colleagues, and in our branches, people in certain positions were also provided the opportunity to work from home.

Due to the second wave of the epidemic, employees are not forced to commute to the headquarters; they can choose to work from the office on a voluntary basis. We see that 20 percent of the headquarters’ staff works from the office, while 80 percent still perform their duties from home. Of course, branches operate regularly.

In my opinion, a healthy balance needs to be struck in the medium term.

An order of 60 percent work from the office and 40 percent teleworking would ensure stable and sustainable operations.

On the one hand, this proportion would provide comfort and flexibility to employees, while, on the other hand, we consider it important to build and nurture the CIB community and workplace relationships, which has always been an integral part of CIB’s corporate culture.