A reasonable-looking compromise decision on the debt moratorium

HUNGARY - In Brief 08 Sep 2021 by Istvan Racz
According to a so far officially unannounced report by the local daily Világgazdaság, which we give much credit to, as it sounds rather realistic, the government cabinet have made its decision on the existing moratorium on local bank debts, which is set to expire, according to current regulation, on September 30. According to MNB data, some HUF4900bn of debt owed by households and domestic companies, all generated before March 18, 2020 were in the moratorium at end-May. This stock represented then no less than 1.3 loan contracts, by 184k less than at the end of last year. At that time, debts affected by the moratorium gave 35% of all household debt to banks and 22% of similar debts owed by enterprises.According to the new decision, the moratorium would be extended in a limited form through the middle of next year. Those who can stay in the moratorium, if they want to, will be old-age pensioners, families with children, individuals whose income has fallen compared to a year ago and enterprises whose sales revenue has fallen by at least 25%. For the rest of debtors, the moratorium will end on September 30, in line with existing regulation.This solution looks a reasonable compromise at first glance. As the debt moratorium has been in place since late March 2020, there seems to be a substantial and increasing risk of a massive wave of debtor failures once it is eventually ended. This is currently a major financial stability concern, recently stressed by the MNB, among others. On the other side, a gradual phasing out of the scheme may make sense, so that banks and the economy do not have to face the whole problem at once. This latter consideration corresponds with Fidesz' f...

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