Moodyʼs affirms MFBʼs Baa3 deposit and debt ratings

Ratings

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Moodyʼs Investors Service on Friday affirmed the Baa3 long-term foreign currency-backed senior unsecured debt and deposit ratings of the Hungarian Development Bank (MFB), as well as its Prime-3 short-term foreign currency-backed deposit rating.

The outlook of the long-term ratings remains stable. At the same time, Moodyʼs has withdrawn the bankʼs standalone baseline credit assessment (BCA) of b2, according to a press release sent to the Budapest Business Journal.

MFB is a 100% state-owned development bank and benefits from an irrevocable state guarantee on its issued bonds, attracted loans and interbank deposits, as well as replacement costs of currency and interest rate swaps. As such the rating agency said it is using an approach based upon the ability and willingness of the government to provide timely support.

The affirmation of MFBʼs Baa3 long-term deposit and debt ratings is driven by the explicit and irrevocable guarantee provided by the Hungarian state (Baa3 stable) for MFBʼs aforementioned financial obligations. Given the Hungarian stateʼs guarantee for MFBʼs aforementioned liabilities, the bankʼs ratings qualify for a credit substitution approach that is based on a full risk transfer to the guarantor, and are therefore positioned at the same level as the ratings of the guarantor, explains the press release.

This approach also takes into account the bankʼs unique policy function within the country, with a mandate to support infrastructure development, agriculture and SMEsʼ access to finance. In addition, it takes into account its full state ownership, and its supervision by the Hungarian government through the delegation of certain members of the Board of Directors and Parliament.

Notwithstanding this approach, the rating agency said it recognizes MFBʼs robust capital buffers, with a 25.99% total capital adequacy ratio, its elevated asset risk reflected in a 14% problem loan ratio in the bankʼs direct lending portfolio as of year-end 2016, as well as its moderate profitability and high reliance on market funding.

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