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Hungary markets slide on liquidity crunch

  Hungary’s currency and bonds fell sharply on Thursday as concerns grew over the country’s financing and banking system amid the global financial crisis and as the government said it would redraft the 2009 budget.

 

Liquidity dried up and trading froze in the government bond market, which sent the forint into falls and late rumors, subsequently denied, that the government planned to nationalize its biggest commercial bank, OTP aggravated losses. Shares in OTP, central Europe’s biggest independent bank, plunged over 14% in late trade on market talk that the government was planning to nationalize it.

Both OTP and the government firmly denied the rumor. “This is absolutely nonsense,” OTP Chairman and CEO Sándor Csányi told Reuters, adding that OTP had all the financing it needed until the end of 2009. Government spokesman Dávid Daróczi also denied the rumor, saying it was absurd, after traders cited it as the reason for both the currency and the stock moves. “There is a rumor coming from London that OTP is getting nationalized,” one Budapest-based currency dealer said.

Finance Minister János Veres firmly denied that the state wants to take OTP under its protection. He said he had no knowledge that OTP is suffering from liquidity problems, rather its capital position is extraordinarily stable. On Wednesday, Hungary’s central bank (MNB) said OTP was strong and well capitalized. Csányi said OTP had all the financing it needed until at least the end of 2009, and was on way to meet 2008 earnings targets. “We are liquid and our business plans are calculating with not issuing any bonds this year and next year,” Csányi said. “There aren’t too many banks in Europe with stronger capital adequacy ratios.” He added, that based on September figures, the bank was well on its way to meeting its target of raising net profit by more than 10%.

Financial market regulator PSzÁF spokesman István Binder told MTI , the Hungarian banking system had tens of billions of forints of net inflows on Thursday, as on other days recently. All banks are stable, according to PSzÁF’s daily indicators, he added.

The forint fell nearly 4% to seven-month lows at 262.00 versus the euro.

Ten-year government bond yields jumped to around 9.95% from the 9.07% average yield set at an auction earlier on Thursday where Hungary cut its offer by Ft 10 billion (31.5 million pounds) to 30 billion. Hungary’s markets are fragile as the country’s high state debt levels and the reliance of its banking system on foreign financing keep it among the most vulnerable economies in the eastern part of the European Union, analysts said.

Citigroup analyst Eszter Gargyan said in a note that the Hungarian banking sector -- in which foreign banks have dominant stakes -- may face serious stress in meeting short-term obligations if access to external funds and foreign currency markets ceases. Hungary also has one of the slowest growing economies in the region and Finance Minister János Veres said on Thursday an economic slowdown at its main export partners will force the government to cut its 3% growth forecast in the 2009 budget and redraft the budget.

 

MARKET EYES CENTRAL BANK

 

Debt agency AKK allowed government bond traders to widen yield quote spreads to 50 basis points from 30 basis points, but analysts said the measure may not improve liquidity in the secondary bond market. Asset swap yields, which earlier stayed well below the bond yield curve, also rose. “I suppose that the central bank will not allow these markets not to work and will intervene, if needed,” said Zsolt Kondrat, analyst at MKB Bank. “We don’t know yet whether it will be needed, let’s see how markets open tomorrow.”

K&H Bank’s György Barcza said: “Yields are unlikely to go further up as there is no trading... the central bank could help liquidity.” Earlier this week the central bank said it was ready to act if absolutely warranted to uphold confidence in the banking system and ensure the safe operation of financial markets. (Reuters)

 (Reuters)