Moodyʼs revises outlook for Hungary banking system to stable

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Moodyʼs Investors Service on Friday revised its outlook for Hungaryʼs banking system to stable from negative, Hungarian news agency MTI reported. Moodyʼs sees the bank sector operating environment stabilising in the coming 12-18 months. 

"We expect that the operating conditions for Hungarian banks will improve in 2015-16, amid relatively strong economic growth and a shift in the governmentʼs policy stance towards banks," said Armen Dallakyan, a senior analyst at Moodyʼs. Moodyʼs said the improvements in banksʼ operating environment would help them return to profitability and stabilize their credit fundamentals, "albeit at weak levels".

Asset quality should show an improving trend this year and next, Moodyʼs said, noting the positive impact of the recent government-mandated conversion of FX-denominated mortgages into forints, eliminating risk related to a possible devaluation of the local currency.

Another government measure requiring lenders to compensate borrowers for making unilateral changes to contracts and using exchange rate margins when calculating repayments on FX loans is likely to shave 2-3 percentage points off the retail non-performing loan ratio, which stood at 22.4% at the end of last year, Moodyʼs said. Hungarian banksʼ Tier 1 capital ratios declined an average 2 percentage points in 2014 because of provisioning for the borrowers relief, Moodyʼs noted, but added that it expects capitalization to "improve moderately" over the outlook horizon.

Moodyʼs forecasts real GDP growth in Hungary of 2.8% in 2015 and 2.2% in 2016 on the back of increased government spending as well as stronger exports and private consumption.

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