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Fitch sees “the possibility that Hungarian bank tax could be introduced in other CEE countries”

There are some risks that Hungary's planned banking sector tax will be “replicated” in other countries of the region, senior City-based financial analysts said on Wednesday.

At an emerging markets seminar held in London, Fitch Ratings said that foreign parent banks with strategic interests in Central and Eastern Europe have remained committed shareholders even though pressures continue to weigh on profitability from weak asset quality, partly due to high foreign exchange lending ratios.

Asked about potential risks of the planned Hungarian levy on the financial sector, Michael Steinbarth, senior emerging markets banking analyst at Fitch told Econews after the seminar that a bank tax in an economy “that is still a bit fragile” affects the profitability of banks. And from a ratings perspective, if a bank is not very profitable, it means that it cannot replenish or build up its capital buffer.

In Hungary, banks are currently still adequately capitalized. However, capital could be needed to deal with the strong volatility that “we see from the lending in foreign exchange, notably in Swiss francs” if it continues for a longer period. A “quite sizeable” bank levy on top of the impact of the forint's depreciation against the Swiss franc will obviously affect the overall financial profile of the banks, Steinbarth added.

From a pure credit rating analyst's point of view, a bank tax takes out profitability of the banks which would be required to further build up their capital positions, he said. If the volatility were to continue, foreign shareholders may potentially be required to inject capital into the banks, Steinbarth said.

He stressed, however, that he did not see the foreign players remove their banking operations from the Hungarian market purely because of the bank tax.

Asked about the other countries where a bank tax could be introduced, he said that he understands that discussions are beginning in Poland between the government and the banking association, although the impact of the levy might not be very material. (MTI-Econews)