Fitch augurs improvement in Hungaryʼs lending portfolio

The sectorʼs NPL ratio, at a “still high” 11.7% of gross loans at the end of 2015, is expected to improve as a “supportive operating environment” stalls new NPLs and newly introduced regulations give banks incentives to clean up their commercial real estate portfolios, Fitch said. 

It noted that the National Bank of Hungary (MNB) had announced the introduction of a systemic risk capital buffer, effective from 2017, that will require banks to hold additional capital against their distressed exposure to commercial real estate. It added that Hungarian Reorganization and Receivables Management Company (MARK), set up by the MNB to buy bad commercial real estate loans and properties from banks, “could provide a useful mechanism” for banks to move NPLs off their balance sheets. 

The corporate NPL ratio for Hungaryʼs banking sector stood at 7.9% at the end of last year. Much of the NPLs are linked to commercial real estate projects impaired in the aftermath of the financial crisis, Fitch said. 

The NPL ratio for retail loans was 17.5% at the end of 2015. Fitch said the quality of Hungarian banksʼ retail portfolios “is likely to remain weak for an extended period” as the recent conversion of FX mortgages into forints is not a cure-all and foreclosures procedures “are largely ineffective”.