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PSZÁF calls for prudence when managing restructured loans

Hungarian financial market watchdog PSZÁF has called on lenders to manage restructured loans in a prudent manner, noting that the minimum legislative requirement may not be sufficient in some cases.

In a letter dated September 5 and signed by PSZÁF head Karoly Szasz, the regulator said it approved of restructuring in the sector, as a generally accepted practice, but warned that restructured loans should be managed prudently and not used as a veil for higher loan risks.

PSZAF noted that regulations do not allow restructured loans to be reclassified in a better risk category.

There are no regulations on changing provisions for restructured loans, but PSZAF said banks should exercise prudence and leave provisions for such loans unchanged until there is sufficient evidence to support lowering them.

The regulator also recommended lenders calculate their own impairment for restructured loans, rather than using the minimum required by government decree.

PSZAF also said the criteria for a restructured loan should apply irrespective of existing collateral, be it property or guarantees from a bank or the state.

In spot checks, PSZAF said it would pay special attention to lenders' restructuring practices and see they remain in line with the regulations and properly register the loans.

The National Bank of Hungary (NBH) said earlier that restructuring makes it difficult to assess the quality of banks' portfolios as such loans are often reclassified and the related risk provisions freed up.

Restructured loans made up 8% or HUF 1,527 billion of the Hungarian banking sector's gross loan stock at the end of June, fresh data from PSZAF show.

The NBH's latest lending survey also showed that while the share of restructured loan stock rose, its quality worsened in the second quarter. One-third of restructured mortgages and vehicle loans were at least 30 days past due and one-fourth of the restructured corporate loan stock was over 90 days past due at the end of June.