Moody's also changed the outlooks for banking sectors in the Czech Republic, Germany, Italy, Poland, and Slovakia to negative from stable.
Louise Welin of Moody's said operating conditions in those economies are expected to worsen further, causing portfolio quality as well as profitability to deteriorate, while weakening access to financing.
Moody's said rising prices and interest rates are impacting the solvency of businesses and households.
The report on the Hungarian banking sector shows Moody's expects Hungary's GDP growth to reach 5.5% this year before slowing to 0.8% in 2023. Moody's knocked down the projection for next year because of higher inflation and interest rates as well as weaker demand on Hungary's biggest export markets.
Moody's sees Hungary's year-end CPI reaching 19% in 2022 and 6.3% in 2023.
Moody's said government measures have sapped a significant part of banks' earnings, creating an uncertain environment and weakening the attractiveness of local lenders for foreign investors.
The rating agency acknowledged the banking system's significant liquidity reserves but augured a decline as household savings fall. It added that a significant portfolio deterioration would be avoided thanks to low private sector debt levels, the high share of fixed-rate credit, strict norms for credit outlays, and the large proportion of state-subsidized loan constructions.
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