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Fitch: Recovery of Hungarian banks underway

Ratings

The operating environment for banks in Hungary has improved, due to positive developments in the economy and the governmentʼs intention to facilitate a gradual normalization of the banking business environment, Fitch Ratings said on Friday.

The ratings agency said in a peer review of Hungarian banks that the governmentʼs commitment is reflected in the memorandum signed with the EBRD in February in which the government pledged to refrain from implementing new onerous banking legislation and to reduce the bank levy in 2016 and then further in 2017.

The Hungarian banking system is likely to be profitable in 2015 after an all-time high loss in 2014. However, prospects for the sector remain weak due to muted appetite for new credit in the economy, substantial legacy problem loans and thin margins in light of low interest rates, Fitch Ratings said.

Banks are unlikely to return to pre-crisis profitability because previous results were inflated by rapid growth and relaxed lending standards, and the regulatory environment has become much more restrictive, including increased capital requirements, Fitch Ratings said.

However, the inflow of new problem loans has reached its peak and asset quality should remain broadly stable in the near future due to muted credit growth and elimination of FX-induced credit risks in residential mortgages.

 The sectorʼs liquidity in forints is strong and banks improved their self-financing capacity after the conversion of FX mortgages. Capitalisation remains a weakness at several large banks, but this pressure is mitigated by loan book deleveraging and capital injections from foreign parent banks, Fitch added.

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