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Fitch affirms Erste Hungary at 'BBB+' with stable outlook

Ratings

Fitch Ratings on Monday affirmed Erste Bank Hungary's long-term issuer default rating at "BBB+" with a stable outlook, according to a report by state news wire MTI.

The rating is based on potential support available from Austrian parent Erste Group which holds 70% of Erste Bank Hungary, Fitch said.

"In Fitch's view, the parent will continue to have a high propensity to support its Hungarian bank subsidiary, because of the high strategic importance of the central and eastern European region for Erste," it added.

Fitch noted that it continues to cap Hungarian banks' long-term issuer default ratings one notch above the sovereign's - "BBB" with a stable outlook - "to reflect the country risks they face, in particular the record of state interference in the banking system".

The agency said it believes the effect of near-term uncertainty arising from the pandemic on Hungarian banks' credit profiles "is contained" and that risks are "mitigated by the country's solid recovery prospects due to economic normalization, an advanced vaccination rollout, and a low unemployment rate".

Fitch acknowledged that the continued blanket repayment moratorium "masks the underlying asset-quality picture in Hungary", but said lenders' "solid pre-impairment operating profitability and reasonable reserve cushion should allow them to absorb potential deterioration in loan-book quality without any material weakening of capitalization".

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