Hungary faces the rising risk of a credit crunch because of the withdrawal of external funds and the high ratio of non-performing loans, the central bank said.
Lenders replacing external funding with “risky” foreign-currency swaps may be another trigger for a credit crunch and the Magyar Nemzeti Bank will consider regulating such transactions, the rate-setting Monetary Council said in a statement today.
A loan agreement with the European Union and the International Monetary Fund, which Hungary requested in November, may help reduce the probability of a severe credit crunch as it may include the commitment of foreign banks to their Hungarian units, the central bank said. The European Commission yesterday authorized Hungary to start bailout talks.
“The risk of a severe credit crunch, mainly in the corporate segment, has increased recently, given the weakening in the banking sector’s lending capacity, in addition to its persistently low willingness to lend,” the Monetary Council said.
The forint gained 0.4 percent to 287.08 per euro as of 10:20 a.m. in Budapest, extending its three-day rally to 4.2 percent, the biggest in three years. OTP Bank Nyrt., Hungary’s largest lender, advanced 1.4 percent to 3,865 forint, pushing its three-day gain to 14.7 percent.
OTP competes mostly with units of international banks including Erste Group Bank AG, Raiffeisen Bank International AG, UniCredit SpA, Bayerische Landesbank AG, KBC Groep NV, and Intesa Sanpaolo SpA.
The financial system is stable and has shown “strong resilience” to shocks, while banks’ ability to support economic growth is weakening, the Magyar Nemzeti Bank said.
The ratio of non-performing corporate loans reached 17 percent at the end of 2011, a 4 percentage point increase from a year earlier, the central bank said. Including restructured loans, about a quarter of corporate loans were impaired, the bank said. The ratio will probably rise through 2013, the central bank said.
The ratio of non-performing household loans rose to 13.1 percent in 2011 from 9.5 percent in 2010 and will probably peak this year, according to the report