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Fitch downgrades four Hungarian banks

Fitch Ratings on Thursday said it downgraded four Hungarian banks, about a week after it cut Hungary’s sovereign rating a notch under "investment grade".

Fitch said it downgraded CIB Bank’s and K&H Bank’s Long-term Issuer Default Ratings (IDR) to ‘BBB’ from ‘A-’ with Negative Outlook and CIB’s, K&H’s, Erste Bank Hungary’s and Raiffeisen Bank’s Support Ratings to ‘2’ from ‘1’. Fitch added that it maintained MKB Bank’s Support Rating of ‘2’ on Rating Watch Negative and affirmed OTP Bank’s Support Rating at ‘3’.

The downgrade of CIB’s and K&H’s Long-term IDRs and CIB, K&H, Erste’s and Raiffeisen’s Support Ratings reflect the downgrade of Hungary’s Country Ceiling to ‘BBB’ from ‘A-’, Fitch said. Both CIB and K&H share the Negative Outlook of the sovereign’s Long-term foreign currency IDR of ‘BB+’ and are likely to be downgraded if Hungary’s foreign currency Long-term IDR is downgraded further, the ratings agency added.

Fitch said it believed there was "a high probability" that CIB, fully owned by Italy’s Intesa Sanpaolo, K&H, a unit of Belgium’s KBC Bank, Erste, wholly owned by Austria’s Erste, and Raiffeisen, a subsidiary of Austria’s Raiffeisen Bank, would receive support from their parents if required. Fitch added that it expects the parent institutions to retain their presence in Hungary, although they are likely to more tightly ration capital and funding given the weak outlook for the sector.

MKB’s ‘2’ Support rating reflects the potential for support from its owner, Bayerische Landesbank, Fitch said.

OTP’s Support Rating reflects the moderate probability of support from the domestic authorities given its high domestic systemic importance, it added.

Fitch said its outlook for the Hungarian banking sector remains negative.

"This reflects the high risks arising from exposure to foreign-currency loans, the recessionary environment (Fitch forecasts a 0.5% contraction of GDP in 2012) and significant losses due to high impairment losses, the special bank levy and the early repayment scheme for FX mortgages. Negative internal capital generation at most banks drags on lending capacity and the ability to attract funding and capital from parent institutions." it said.