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Hungary Should Raise Banks’ Capital Limit, Pszaf Chief Tells MTI

Hungary should raise the banking system’s capital adequacy ratio from 8 percent to ease the threat of further credit downgrades and help talks with creditors, Karoly Szasz, the head of the financial market regulator Pszaf, told state news agency MTI.

“We must not wait until a potential new credit downgrade or for the International Monetary Fund to request us to do so,” Szasz said in an interview published today. “We must be proactive and the stability of the system requires it as well.”

Hungary, which had its credit rating cut to junk at Moody’s Investors Service last month, has asked the IMF for a “financial safety net” as it seeks to avoid recession next year. The IMF package may be between 15 billion euros ($19.8 billion) to 20 billion euros, Mihaly Varga, chief of staff for Prime Minister Viktor Orban, said in an interview with the Origo news website today.

Hungary’s financial system, though stable, has “reached the limit of its ability to withstand risks and burdens and is showing a rising number of cracks,” Szasz said. The European debt crisis and domestic measures, including a special tax on banks and a mortgage repayment plan forcing banks to book losses on such products, has taken a toll on banks’ capital and profitability, according to Szasz.

The watchdog is proposing an increase in the Tier 1 ratio of certain banks that reach a regulatory size limit and lenders would have to come up with the extra capital in 2012, Szasz said. Pszaf has sent the proposal to the Economy Ministry for approval, he said.

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