Positive comment from Moody's on the MNB's new prudential rules for mortgage lending

HUNGARY - In Brief 28 Aug 2018 by Istvan Racz

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In a recent report on the vulnerability of emerging economies in the light of financial market corrections, Moody's made some praising comments regarding the MNB new prudential rules for banks' mortgage lending, which were out a few days ago and will take effect in October 2018. According to these rules, the regulatory maximum for the ratio of the debt service payable by any mortgage borrower to the total income earned by the same borrower (PIT) will be reduced to 25-30% (depending on the size of that total income) in the case of loans with interest fixed for less than five years, and to 35-40% for loans with interest fixed for 5-10 years, both from the current 50-60%, which will be maintained only for loans with interest fixed for at least 10 years.Moody's said that even though the indebtedness of Hungarian households is relatively low, the new regulation is an example for the proactive management of macro-prudential risks, this time around the significant interest rate risk generated by the current global environment of ascending interest rates.Major ratings and review date for Hungarian LT sovereign debtSources: Moody's, S&P, Fitch Ratings, Portfolio.huThis comment raises the chance of a positive rating action from Moody's later this year. The next review date for Moody's on Hungary will be on November 23. We still think that an upgrade from Baa3 on that occasion is unlikely, just as similar moves by any of the other two major rating agencies on similar Hungary ratings in short term. However, an improvement of the rating outlook to Positive seems to have at least a 50% chance in November. S&P and Fitch Ratings both maintain a Positive outlook on their BBB- ratings g...