Moody's Investors Service said it took rating actions on nine Hungarian banks, downgrading OTP Bank, OTP Mortgage Bank, CIB Bank, K&H Bank, MKB Bank, Erste Bank Hungary, Budapest Bank and MFB.
The ratings of FHB mortgage bank were confirmed, but the outlook was changed to negative from stable.
The downgrades - in many cases of several notches - reflect Moody's view that the rapid deterioration of the Hungarian operating environment, which has resulted in the rating agency downgrading the Hungarian government bond rating by two notches to Baa1 (negative outlook) since November 2008, is putting significant pressure on the banks' standalone creditworthiness, as measured by their bank financial strength ratings (BFSRs).
Moody's said that it had reviewed the probability of systemic support for the rated banks.
With the Hungarian economy entering recession, the likelihood of corporate defaults is rising and that this will lead to increased losses on banks' corporate loan portfolios, Moody's said, adding that the worsening situation in the job market, forint volatility and potential decline in house prices are also likely to result in increased losses on retail portfolios.
“We believe that these losses are likely to significantly weaken the capital position of most Hungarian banks over the next two years,” said Gabriel Kadasi, Moody's lead analyst for the Hungarian banks.
Moody's also refined its assessment of the probability of systemic support available from the Hungarian state as the erosion in the local economy's underlying credit fundamentals and the resulting reduced policy flexibility has adversely affected the government's ability to support the banking sector.
Moody's views Hungary as one of the riskier banking systems in Central and Eastern Europe (CEE), given the large share of foreign currency lending in total lending (more than 60%), which has been driven by fast growth in wholesale funding, primarily in foreign currency. With increased forint volatility and with the economy shrinking by as much as 5% in 2009, the credit risks for the banking sector have increased rapidly. (MTI – Econews)