At the same time, the bankʼs baseline credit assessment (BCA) and its adjusted BCA were upgraded from caa2 to caa1, and its long-term Counterparty Risk Assessment (CRA) was upgraded from B2(cr) to B1(cr), Moody’s said. The outlook on the bankʼs long-term deposit ratings remains stable, while MKBʼs short-term Not Prime deposit ratings and Not Prime(cr) CRA were left unaffected.
According to Moodyʼs, the upgrade of MKBʼs ratings primarily reflects the gradual improvement in the bankʼs financial fundamentals, albeit at still weak levels, particularly the continued reduction in problem loans and recovering profitability.
The upgrade of MKBʼs long-term deposit ratings from B3 to B2 was driven by: (1) the upgrade of the bankʼs BCA from caa2 to caa1; (2) maintaining two notches of rating uplift for deposit ratings from Moodyʼs Advanced Loss Given Failure (LGF) analysis; and (3) no rating uplift from government support, said the press release.
The upgrade of MKBʼs BCA reflects the reduced risks to the bankʼs solvency owing to improvements in asset quality and a return to profitability in 2016 after six years of losses, Moody’s said.
“The bankʼs problem loans ratio declined to 21.5% in December 2016, from 30.1% in December 2015, mostly due to a sizable reduction in the bankʼs troubled commercial real estate (CRE) loans,” Moody’s explained.
According to Moody’s, MKBʼs improving asset quality resulted in an 84% reduction in loan-loss provisions in 2016, the main driver behind the turnaround in profitability.
“Although positive earnings moderately improved MKBʼs reported Tier 1 ratio to 12.04% in December 2016, from 11.28% in December 2015, leverage remains high compared with most of its Hungarian peers, with the bankʼs shareholdersʼ equity-to-assets ratio at 5.97%, versus a 10.54% average for the Hungarian banking system,” Moody’s said.
Moody’s said it foresees a benign operating environment in Hungary that will continue to benefit the credit quality of local banks, including MKB, over the next 12-18 months.
“MKB was privatized in July 2016 just before the completion of its resolution. The bankʼs still weak financial profile and evolving business model under new ownership and management remain key challenges for a successful turnaround of the bank. The stable outlook reflects Moodyʼs view that the upside and downside risks to MKBʼs ratings will be balanced in the next 12-18 months,” Moody’s recalled.
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