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Moodyʼs changes outlook on Hungarian banking sector

Moodyʼs Investors Service changed the outlook on Hungaryʼs banking sector from positive to stable in a report published on Tuesday. The stable outlook is supported by banksʼ funding and capital, and by economic growth, Moodyʼs said.

"Banks have largely completed de-risking their balance sheets and further improvements in loan quality will be more limited in the next 12 to 18 months," Moodyʼs said in a press release sent to the Budapest Business Journal.

Moodyʼs added that it expects Hungarian banksʼ ratio of non-performing loans (NPLs) to fall to around 5.5% by the end of 2019, from 6.2% in 2018, and about 15% in 2016.

"Banks will continue to rely on domestic deposits as their key funding source, a credit strength, while liquidity buffers will soften but remain high," said Moodyʼs analyst Melina Skouridou. "Operating conditions will remain favorable," she added.

The rating agency noted that deposits accounted for around 70% of total assets of the banking sector at the end of 2018 and would continue to be Hungarian banksʼ main funding source. It added that a high portion of foreign currency deposits poses a refinancing risk.

Moodyʼs expects Hungaryʼs real GDP to grow by 3.8% in 2019, and by 3.2% in 2020, well above the eurozone average of 1.9%.