An option of full repayment of fx retail mortgages at preferential rates would affect the capital adequacy ratio of the Hungarian banking system, but would not prompt an immediate need for capital injection by the owner or by the state, the international credit rating agency Fitch Ratings said in a new report on Wednesday.
Fitch assumes a take-up rate of 25% for the scheme.
Under this assumption, early loan repayment would absorb approximately 1.5 percentage points of the sector's Tier 1 capital ratio. This would not create an immediate need for recapitalization by either the parent banks or the sovereign, Fitch said in a press release on the report.
The credit rating agency noted, however, that banks could take larger hits to capital than this aggregate calculation suggests, given considerable differences in Tier 1 ratios and exposure to foreign currency mortgages between banks.
Recently approved legislation gave holders of foreign-exchange denominated loans until end-2011 to opt for full loan repayment at exchange rates of HUF/CHF 180 and HUF/EUR 250, approximately 25% below current market rates. The financial costs of the measure will be borne exclusively by the banking sector.
Fitch recently markedly revised its forecast for Hungary's 2011 and 2012 GDP to 1.6% and 1.5%, respectively. The agency deems that the effect of lower growth prospects for Hungary's key western European trade partners and of continuing domestic fiscal austerity will dwarf the impact on economic activity of early loan repayments, the press release said. However, the measure may contribute to curbing bank credit growth, as well as worsening investor perceptions of Hungary, with detrimental effects on GDP growth in the medium term.
CHF appreciation has considerably increased Hungarian municipalities' debt burden, to an estimated 1.8% of GDP in June 2011. However, the banks that underwrote the CHF-denominated municipal debt issues have shown flexibility in altering the original repayment schedules. Therefore, Fitch believes that the CHF exposure of municipalities poses a relatively limited risk to broader public finances.
In Fitch's view, the Hungarian government's measures to deal with the problem of high FX debt loads pose risks to the banking sector and to Hungary's reputation among investors. However, the agency continues to deem the commitment to medium-term public deficit and debt reduction plans, growth prospects and external financing risks as the key drivers of future rating actions.