Fitch downgrades K&H and Erste Bank Hungary

Ratings

International financial credit rating service Fitch Ratings yesterday said it downgraded the long-term issuer default rating of both Hungarian institutions – K&H Bank and Erste Bank – to 'BBB-' from 'BBB', while keeping the outlooks for the ratings stable.

Fitch explained the decision saying that "reassessment of the linkage between sovereign and bank credit risk in Hungary" capped the bank ratings at one notch above Hungary's sovereign rating: 'BB+' with a stable outlook. "The numerous government interventions in the banking sector, including most recently the imposition of additional losses on retail loans, amplify country risks for banks operating locally," Fitch argued.

"These hinder Fitch's confidence that the banks' ability to service their debt and/or parent banks' readiness to continue providing support would withstand a sovereign default," the ratings agency added.

Fitch also affirmed CIB Bank's long-term issuer default rating at 'BBB-' and revised CIB’s outlook from negative to stable, mirroring the revision of CIB’s parent bank Intesa Sanpaolo. Fitch concluded that provisions related to refunds banks must pay under the borrowers' relief legislation as a percentage of equity at the end of last year come to 33% for K&H Bank, 61% for Erste Bank Hungary and an estimated 33% for CIB Bank.

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