Risk developments on the retail mortgage loan market

In this study, using three commercial banks’ retail mortgage loan portfolios (consisting of approximately 200,000 clients with housing and home equity loans), we analyse the risk characteristics of the portfolio, identify customer-specific and product-specific factors, and market and macroeconomic factors that influence portfolio quality, and finally calculate the loan loss on the retail mortgage portfolio of the banking sector in an extreme macro-risk scenario (10 per cent decline in GDP; exchange rate of EUR/HUF 340). Our findings suggest that the loans’ denomination structure, the initial loan-to-value (LTV) ratio and the debtor’s level of education can be considered as the main customer-specific and product-specific drivers of default risk, while the unemployment rate, domestic and foreign interest rates as well as the exchange rate constitute the major macro-risk factors impacting defaults. Based on our calculations, in the macro-risk scenario the total loss on the retail mortgage loan portfolio of the banking sector would amount to HUF 372 billion, which is approximately 6 per cent of the end-2008 mortgage loan portfolio.