This affirmation comes alongside an upgrade of K&H’s Adjusted Baseline Credit Assessment (BCA) from baa3 to baa2, while the BCA itself remains at ba1. Additionally, Moody’s has affirmed K&H’s A3/P-2 Counterparty Risk Ratings (CRR) and Baa1(cr)/P-2(cr) Counterparty Risk (CR) Assessments.
This decision was influenced by a recent rating action on K&H’s parent company, KBC Bank N.V. (KBC), which saw an upgrade of its senior unsecured debt to A3 with a stable outlook, Moody’s said.
The ba1 BCA of K&H reflects its strong position as Hungary’s third-largest bank, characterized by solid profitability and robust asset quality. However, profitability is expected to decline due to lower policy interest rates, the rating agency argued, adding that K&H’s asset quality benefits from lower problem loan volumes and high reserve coverage, balancing the unseasoned credit risks from its rapid lending growth.
Despite increased capital buffers from retained profits over two years, K&H’s regulatory capital ratios are below the system’s average, partly due to significant investments in Hungarian government bonds. Nonetheless, the bank maintains a strong, deposit-driven funding profile and substantial liquidity buffers.
The upgrade of K&H’s Adjusted BCA to baa2 is linked to the improved financial strength of its parent, KBC, whose BCA has risen from baa1 to a3. This upgrade is underpinned by the high likelihood of support from KBC, which fully owns K&H and considers it a core subsidiary in its Central and Eastern European operations, Moody’s added.
The affirmation of K&H’s A3 deposit ratings and CRR is constrained by Hungary’s sovereign rating, which is two notches lower at Baa2. Moody’s Advanced Loss Given Failure (LGF) analysis continues to provide three notches of uplift to the bank’s deposit ratings and CRR, but these are capped at A3, reflecting the sovereign constraint. The low likelihood of support from the Hungarian government also limits further rating uplift.
K&H’s Baa1(cr) CR Assessment remains one notch above its baa2 Adjusted BCA, capped similarly by the sovereign rating.
The stable outlook on K&H’s long-term deposit ratings indicates that Moody’s expects the bank’s credit profile and liability structure to remain stable over the next 12-18 months. This outlook aligns with the stable outlook on Hungary’s sovereign rating.
There is limited potential for an upgrade of K&H’s A3 long-term deposit ratings and CRR without an upgrade of Hungary’s sovereign rating, Moody’s argued. The Adjusted BCA could be raised if there is an increased likelihood of parental support from KBC, though this might be offset by reduced affiliate support uplift.
Conversely, a downgrade in Hungary’s sovereign rating would lead to a corresponding downgrade in K&H’s ratings. K&H’s BCA and Adjusted BCA could also be downgraded if there is a significant deterioration in its solvency, liquidity, and funding profile, or a reduced likelihood of support from KBC.
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