Hungary non-performing loans rise on weak forint

The stock and ratio of non-performing loans (NPL) in the portfolio of Hungarian banks both rose further in the second quarter, and, after three quarters of near-stagnation, the NPL ratio of corporate loans rose steeply, figures published by Hungarian financial market watchdog PSzÁF on its website on Tuesday reveal.

The quality of foreign-currency loans deteriorated further, and their NPL ratio jumped near to that of forint loans in the business segment, and the ratio surpassed that of forint loans in the household segment for the first time.

The sector's capital adequacy ratio was still a safe 13.77% at the end of June, slightly down from 13.8% at the end of March, but up from an audited 13% at the end of last year.

The pre-tax profit of the sector fell 0.3% in one year to HUF 161.7 billion in the first half of 2011. A total of 73% of the profit was generated, however, by one single bank, OTP Bank, which boosted IFRS unconsolidated pre-tax profit by 25% in the period.

After-tax profit was HUF 140.9 billion in H1.

Total assets of the sector stood at HUF 27,520.3 billion at the end of June, down 7.7% in one year, but only 0.1% down in three months.

Net interest income of the sector totaled HUF 433.1 billion in H1, dropping slightly from the first to the second quarter of 2011, while operating costs were a tad higher than in the first three months.

Net income from commissions and fees grew by more than a fifth from the first to the second quarter of 2011 and totaled HUF 115.9 billion in H1, 44% of the total generated in 2010.

The banks set aside HUF 107.1 billion in provisions and write-offs in the first half of this year, 90.1% of them in the second quarter, but total H1 provisioning was still hardly more than one-fourth of last year's total.

Banks booked HUF 123.9 billion in the first half on the line which includes the special bank levy as well as net provisioning on forex and other forward transactions.

The figure is little more than one-third of the total in 2010.

The ratio of non-performing loans to total loans held by the Hungarian banking sector rose sharply in Q2, to 10.54% in June from 8.57% at the end of March and from 8.2%. The rise in the ratio was steepest in the past one year.

On the whole, non-performance still was higher among forint than foreign-currency loans, but the gap between the two ratios neared, the figures showed. A total of 63.4% of the HUF 1,881.1 billion non-performing loan stock was in foreign- currency-denominated loans at the end of June, the share was below the 67% share of foreign-currency denomination among all loans.

Non-performing retail loans totaled HUF 841.2 billion at the end of June, making up 11.6% of all retail loans. The ratio rose further from 10.4% at the end of March. The NPL ratio in the segment was 8.1% one year earlier and 9.5% at the end of 2010.

The NPL ratio of foreign-currency-denominated loans, however, reached, 11.9% at the end of June, rising 1.5 percentage points in three months, and surpassing the average non-performance ratio for the first time. The recent steep strengthening of the Swiss franc – in which the bulk of the Hungarian retail loans are denominated – suggests that the deterioration could have continued in the current quarter.

The quality of the business loan stock also deteriorated steeply, with the NPL ratio jumping to 13.6% from 10.9% at the end of March. The worsening was due to foreign-currency loans, where the non-performing ratio jumped to 12.2% from 9.3% three months earlier, in sharp contrast of a Q1 drop from 8.6% at the end of 2010.

The above PSzÁF figures stand for commercial and mortgage banks as well as home savings banks operating as joint-stock companies, except for state-owned special institutions such as the Hungarian Development Bank, the Eximbank or the central depository and clearing house Keler, and they do not cover the Hungarian branches of foreign banks.