Moody’s: Poor investment climate in Hungary to continue

MNB

International advisory/research firm Moody’s Investors Service released its latest “Banking System Outlook: Hungary” report this morning, which ultimately concludes that the negative outlook begun in 2009 is expected to continue. The service’s analysis leads to prediction of a 0.2% increase to GDP for this year – though this would mark an improvement over the 1.7% downturn of 2012 – due to “weak demand for Hungarian exports and the poor investment climate.”

Moody’s is advising that Hungary suffers from a “weak operating environment,” and that incipient pressure on asset quality and capitalization will continue to characterize the market as one of “downside risks.” Also cited as problematic are Hungarian banks’ continued exposure to wholesale and forex-based funding.

Authoring the report was Moody’s Vice President/Senior Credit Officer Simone Zampa, who explained that “Deleveraging and the weak operating environment will limit Hungarian banks’ revenue-generating capacity, and we expect system net interest margins to be compressed by declining interest rates and rising problem loans.”

Despite recent pledges by the national government to move banks away altogether from forex-based bank loans, Moody’s analysis expects continued growth in the “problem loans” ratio, which the advisory reckoned totaled about 20% at the end of the first quarter of 2013. Asset quality is expected to remain poor as well, with Moody’s blaming a weak economy and high unemployment – Hungary’s Central Statistics Office (KSH) figures show this rate to have been at 10.3% for the second quarter of 2013 – in addition to forex-based loan issues.

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