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Banks likely to deepen rather than ease recession in 2009 – Felcsúti

  Hungary’ banking system will likely add to the problems of Hungary’ economy in 2009, rather than present a solution for the expected recession, Hungarian Bank Association chairman Péter Felcsúti said at a conference on Thursday.

 

Hungary's banking system is 80%-owned by foreign strategic investors, and these foreign banks are the reason for the system’ liquidity in the past one and a half or two months. But the parent banks are unlikely to provide additional financing to their Hungarian units as they themselves are also suffering a liquidity squeeze, Felcsúti said.

Hungarian banks’ ability to gather other foreign sources to finance their lending has diminished because of the global financial crisis, he said, adding that the situation will ease only if the global confidence problem among banks eases. There is no confidence problem among Hungarian banks, interbank lending in forints is continuing smoothly -- the problem is the lack of foreign currency, Felcsúti said.

Banks always behave in a pro-cyclic rather than an anti-cyclic manner, but this time the scarcity and high cost of foreign currency is making the problem worse, Felcsúti said. In the current situation, banks are not acting with profits in mind when they tighten or hold back lending. Banks will either slow or stop lending growth in 2009, as some have done already, he added.

Additional financing could come from international institutions, such as the EBRD, Felcsúti said. The government has already taken steps to tap these resources, he added. “I would not be surprised by big movements (in the Hungarian banking system) over the next twelve to 18 months”, Felcsúti said when asked if he expects some banks to withdraw from the Hungarian market. While some banks could move out, new ones could also appear, he added.

Raiffeisen Bank analyst Zoltán Török, speaking at the same conference, said costly credit would drive Hungary into a recession. (MTI-Eco)