Hungary's MKB Bank, a unit of Bayerische Landesbank, has suspended the issuance of foreign currency loans in Hungary to protect clients from currency swings, the bank said in a statement.
This is the first, though so far isolated, sign that the global financial crisis may curb foreign currency lending, an important fuel to economic growth in some central eastern European states.
“The forint's significant weakening over the past several weeks, particularly the last week, and the higher-than-usual volatility has made foreign exchange rate expectations more uncertain than before,” said MKB, Hungary's third biggest bank by assets.
Other Hungarian banks said in e-mailed statements that they were monitoring the situation.
“We are closely monitoring the market situation and the risks clients are exposed to. No decision has been made yet,” said K&H Bank, a unit of Belgium's KBC.
The Hungarian unit of Austria's Erste said: “The review of financing constructions is continuous at Erste Bank, tracking the refinancing market.” But GE Capital's Budapest Bank (BB) subsidiary said that they saw no reason for a change.
“Neither market developments nor client signals have led us to review our foreign currency lending policy,” it said.
Analysts said the global credit crunch may lead western banking parents to end robust financing flows to their units in central Europe, while the weakening of currencies worsens the quality of existing foreign currency loan portfolios.
Citigroup said in a note that the net external liabilities of Romanian and Hungarian banks were the highest in the region.
The head of Hungary's Central Settlement House, Csaba Lantos, former deputy chief executive of OTP Bank said that narrowing access to foreign funds may slash the proportion of foreign currency lending in the Hungarian retail market to below 50% from above 90% of new loans.
“There is no other possibility than forint-based lending coming into the forefront,” he told business portal www.portfolio.hu.
A Polish commercial banker also said foreign currency liquidity was low in the interbank market.
Jozef Wancer, head of BPH bank said: “Currently there is plenty of liquidity on the market when it comes to the zloty, but we are having difficulties with foreign currency and that's where we are expecting assistance.”
Nordea analysts said credit terms were expected to tighten as a result of the global financial crisis.
“In general, credit conditions are likely to be tightened going forward due to falling asset prices and presumably higher funding costs for banks compared with the situation prior to the financial crisis,” Nordea said in a note. (Reuters)