Hungary Banking System Outlook Stays Negative, Moody’s Says
Hungarian banks’ asset quality will deteriorate further and profitability will remain “weak” over the next 12 to 18 months as the operating environment remains “uncertain,” Moody’s Investors Service said.
“The large amount of foreign-currency lending to households underpins the rating agency’s expectation that asset quality will deteriorate further as these borrowers’ ability to service their debt has weakened significantly, following a more than 30 percent depreciation of the forint against the Swiss Franc in recent years,” Simone Zampa, a Moody’s vice president, wrote in a report today.
Sixty-four percent of Hungarian household mortgages were denominated in foreign currencies as of May 31, according to the central bank. Hungarian banks and the government agreed in May to fix the exchange rate on foreign-currency mortgages through 2014 to relieve borrowers of mounting debt repayments.
Local banks, including the units of Raiffeisen Bank International AG (RBI), Erste Group Bank AG (EBS), UniCredit SpA (UCG) and Intesa Sanpaolo SpA (ISP), tightened credit after the 2009 global recession boosted delinquencies and many homeowners who had borrowed, predominantly in Swiss francs, defaulted as the forint weakened.
The forint, which fell to a record low against the Swiss franc last week, has weakened 5.6 percent against the franc in July alone.
Moody’s forecast that bank earnings will remain weak in 2011 as profits are eroded by rapidly growing risk costs, shrinking business volumes and a banking tax, according to the report. Lenders’ operating environment “remains challenging given the relatively distressed household and commercial real- estate sectors,” it said.
“These negative factors reduce the ability of the less well-capitalized banks to maintain a sufficient capital buffer in the current uncertain macroeconomic environment.”
The rating company expects support from the foreign owners of Hungarian banks to continue at current levels.
To contact the reporter on this story: Edith Balazs in Budapest at ebalazs1@bloomberg.net
To contact the editor responsible for this story: James Gomez at jagomez@bloomberg.net
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