BUX further down, OTP weighs

MNB

The Budapest Stock Exchangeʼs main BUX index finished down 0.21% at 22,185.55 Thursday, after sliding 0.46% Wednesday. It is up 33.37% from year-end, after losing 10.40% last year. OTP dragged down the Budapest parquet while other shares picked up towards close following a slight turnaround in euro area markets.

In line with Central European peers, OTP suffered after Austriaʼs Raiffeisen reported falling results, Rating agency Fitch downgraded the Czech and Slovak units of Erste Bank, and expectations grew that recent weak Polish macro data would compel the Polish central bank to renew easing despite communicating an end to its cycle in March. If this happens, it would prompt the National Bank of Hungary (MNB) to accelerate its on-going easing cycle, analysts add.

A slowdown in economic growth and continuing central bank interest rate cuts could curb the margins of banks further.

Investors also keep an eye on the second round of presidential elections on Sunday in Poland. If President Bronislaw Komorowski is defeated, Poland may choose a less business-friendly government in the autumn. His opposition challenger Andrzej Duda has called for new taxes on banks and large supermarket networks. Should Poland follow the Hungarian example in these sectors, it might help the Hungarian government play down EU criticism on its heavy-handed practices, analysts add.

Locally, the MNB continues leaning on banks to express gratitude for easing their tax burden by raised lending. Despite pressure from the central bank to tie a cut of the special bank levy for individual banks to their respective lending growth, a government bill would lower the levy next year unconditionally, in line with a February agreement with EBRD and Erste Bank.

While most or all of next yearʼs levy cut will be offset by increased mandatory payments of banks into depositorsʼ and investorsʼ compensation funds following the recent collapse of several brokerages in Hungary, the MNB does not seem to relent either.

On Thursday, the MNB "welcomed" unspecified plans, presented by the Hungarian Banking Association, to boost lending to companies in the coming years. However, the central bank added that according to its own estimate bank lending to corporates should increase by 6-7% annually, with ever decreasing reliance on the MNBʼs Funding for Growth Scheme, to keep economic growth above 3%.

With market-based lending in Hungary stagnating for years due to lack of demand, this would be an uphill battle. And the MNBʼs "welcome" raises the prospect of interventions by the central bank in the form of fines or other tools, Reuters quoted local experts as saying.

The MNB is also in talks with the Hungarian Banking Association on converting foreign currency-denominated personal and car loans, following the conversion of forex household mortgages. But the banking association estimates lenders could convert just 10-15% of their forex personal and car loans acting on their own.

OTP would be anyway ripe for a correction after rising about 50% since the end of last year. It peaked above HUF 6,000 several times since the end of April, but as it could not sustainably scale this barrier, correction set in, while the bank apparently continued to bye its own shares for a third consecutive day.

OTP lost 1.98% to HUF 5,700 on turnover of HUF 8.30 bln from a HUF 11.02 bln session total, nearly a tenth above the daily average this year.

MOL rose 0.81% to HUF 15,000 on turnover of HUF 1.47 bln.

Magyar Telekom gathered 0.71% to HUF 423 on turnover of HUF 340 mln.

Richter advanced 0.79% to HUF 4,470 on turnover of HUF 818 mln.

The bourseʼs mid-cap BUMIX went out 0.68% lower at 1,598.54.

Elsewhere in the region, WIG 20 in Warsaw was up 0.15%, while Pragueʼs PX fell 0.98%. Western Europeʼs major indices were all up ahead of their close Thursday, FTSE100 in London 0.09%, DAX30 in Frankfurt 0.07%, and CAC40 in Paris 0.17%.

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