Fitch: Hungaryʼs stable banking outlook based on supportive environment

Ratings

The stable outlook for Hungaryʼs banking sector reflects expectations that the supportive operating environment and reduced regulatory pressures on Hungarian banks will contribute to gradual improvement in their asset quality and performance, Fitch Ratings said Thursday, according to Hungarian news agency MTI.

In its annual assessment of Central and Eastern Europeʼs banking sectors released in London, the ratings agency said the outlook for Hungarian banks also takes into account adequate overall system capitalization and limited refinancing risks. 

The bank tax has almost halved this year and the risk of further state intervention negatively affecting the banking sector has now been reduced, adding to system stability, said Fitch.

“We expect that continued real GDP growth (estimated at 2.6% in 2017), will support a gradual recovery in credit demand,” Fitch said, according to MTI.

New loan quality should stay stable due to favorable macro trends, stricter regulatory standards for retail lending and the elimination of foreign currency risk for retail borrowers, Fitch said.

Sector earnings turned positive in the first half of 2016 after a few years of heavy losses, mostly due to one-off effects, including net reversals of provisions and a lower bank tax.

However, “we do not expect banks to return to pre-crisis profitability, while performance will depend on the success of banksʼ work-out efforts and business growth in a low-interest rate environment,” Fitch added.

“We forecast about zero loan growth in 2017, as accelerating new lending in the housing and consumer segments will be offset by amortization of older portfolios,” Fitch said.

Fitch also forecasts sector capitalization levels to be maintained over 2017 at a Tier 1 ratio of 18%, reflecting slow growth, reduced performance pressures and higher capital requirements. “We expect foreign owners to continue recapitalizing their subsidiaries if needed, to ensure compliance with prudential norms,” Fitch added.

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