After an almost decade long slumber, global interest rates are rising in order to battle the overwhelming increase in inflation. Since the Hungarian National Bank (MNB) is one of the most hawkish reserves globally, implementing a series of rate hikes resulting in a more than 10% increase in a single year, many Hungarian Banks had to rethink their corporate and retail strategy, shifting the emphasis from loans to an almost forgotten part of the product portfolio: towards savings.
Hungarian retail investors were always looking for risk-free products, multi-year long Treasury Bonds and term deposits with one year duration. In the past decade as deposit rates were hovering around 0%, many retail investors turned to real estate investments (even with high leverage, which resulted in a dynamic growth in the Hungarian loans market) while the Hungarian National Bank provided enough liquidity for the Banks, which resulted in not providing any measurable returns in term deposits and in T-Bills (with durations shorter than one year).
After several rate hikes, the Government-issued Treasury Bills started to offer higher rates in 3, 6, 12 months than many of the highest-selling Treasury Bonds which triggered a dynamic flight from long term state-issued Bonds to T-Bills. Beside the rate hikes, the MNB has successfully tightened the available liquidity for the Hungarian Banks, making sure the monetary transmission to be effective which meant increasing loan rates as well, resulting in an almost 90% drop in the volume of the loan disbursement on a quarter-to-quarter basis. The two phenomenons made all the currently available retail savings to flow into the short-term T-Bills, and with the dried-out retail loan market, Banks were faced with the challenge of not being able to get deposits and even disburse loans which would ultimately lead to narrowing profit rates. This was the point where the Hungarian Banks started to rethink their strategy and put a much bigger emphasis on the savings products, which resulted in many new IT developments that were due a long time ago.
Being one of the top IT consulting firms, Advocate Business Consulting’s experts were already working with several Financial Institutions and were able to help our clients in a wide range of savings-related projects:
As the global economy getting accustomed to higher interest rates, many experts predict that higher interest rates will stay with us in the next two years, Financial Institutions around the world are already turning towards a forgotten class of retail customers: towards the risk-averse ones, who are using term deposits and savings accounts. The Hungarian money market is no exception to this trend - and Advocate consultants are here to help our strategic partners tackle the new challenges of providing savings products.