Banking System Stable, Housing Market with Higher Risks

The Hungarian banking system continued to be characterized by high profitability, ample liquidity and a strong capital position in 2025, the National Bank of Hungary (MNB) says in an analysis released this week.

In the fresh biannual Financial Stability Report, the central bank and financial market regulator points out that the ratio of non-performing loans declined further, reaching a historically low level by year-end. In the second half of the year, household loans expanded significantly as a result of the Home Start Program, and corporate lending also picked up. The average loan-to-value ratio of newly disbursed housing loans increased substantially, while the housing market’s overvaluation also rose during the year, the central bank points out.

Global geopolitical risks
The analysts highlight that in the early months of 2026, the outbreak of the war in Iran had a significant impact on domestic markets via rising energy prices and declining risk appetite. Global geopolitical risks continue to cause uncertainty in the operating environment for domestic financial institutions.
The profitability of Hungarian banks remained high throughout 2025. The sector’s return on equity (RoE) amounted to 18.9% at year-end. Net interest income was still the primary source of income for banks. The fair value measurement of interest-subsidized loans, which account for an increasingly large share of the household loan portfolio, increases the volatility of banks’ earnings and their sensitivity to the yield environment. Most banks hedge this risk, either fully or partially, in the interest rate swap market. The ratio of non-performing loans decreased, while credit risk remained low.

Significant reserves
Presenting the report, Ádám Banai, a chief economist at the central bank, said interest subsidies accounted for over HUF 400 billion of lenders' combined net interest income of HUF 2,137 billion in 2025.
Based on preliminary data, the capital adequacy ratio stood at 20.1% at the end of last year, which may advance to around 21% following the audit of 2025 results and dividend payments. The banking sector has significant reserves, with free capital amounting to HUF 2,025 billion at the end of the year. The capital position of the banking system would remain robust in the event of any of the three scenarios included in the forward-looking solvency stress test, and even in the event of severe stress, a capital shortage would only affect a small number of credit institutions.

No systemic liquidity risks
Banks’ liquid asset holdings remain ample. The sector’s liquidity coverage ratio (LCR) calculated on an individual basis averaged 172% in February 2026. While no systemic liquidity risks have been identified, certain banks may need to implement more rigorous liquidity management in the event of a stress scenario.
The credit market picked up significantly in 2025. Banks’ outstanding household loans grew by 15% during the year, driven in part by the exceptionally high volume of contracts signed under the Home Start Program, which was launched last September. Central bank analysts estimate that approximately two-thirds of the loans disbursed under the program represented additional contracts. Corporate lending expanded substantially in the final months of the year, resulting in a 7.3% increase in corporate loans outstanding for the year as a whole. However, the recovery in the corporate loan market remains fragile as the macroeconomic fundamentals driving lending have not improved significantly in recent months.

Loans larger than expected
Regarding developments in the household loan market, the MNB study says they require close monitoring. As a result of the Home Start Program, the average loan-to-value ratio of borrowers increased considerably, rising from 59% to 68%. Compared to what was previously customary, borrowers took out substantially larger loans, both in nominal terms and as a percentage of their annual income. House prices appreciated by 23.5% in nominal terms in 2025, and housing market overvaluation increased to 22.5%. Overvaluation increases the risk of a house price correction, which would also have an adverse impact on loan coverage. However, the average debt-service-to-income ratio (DSTI) of borrowers did not rise, despite the increased contract sizes, which mitigates loan defaults and the instalments of loans are fix for the entire maturity.