Moody’s: Hungary banking outlook changed to stable from positive

Moody’s outlook on Hungary’s banking system has changed to stable from positive, as banks have largely completed de-risking and further loan quality improvements will be more limited over the outlook period. The stable outlook is supported by banks’ funding and capital, and by economic growth

Press release – Moody’s outlook on Hungary‘s banking system has changed to stable from positive, as banks have largely completed de-risking their balance sheets and further improvements in loan quality will be more limited in the next 12 to 18 months, Moody’s Investors Service said in a report published today.

Loan quality will continue to improve but at a slower pace. 

Moody’s expects Hungarian banks’ nonperforming loans to fall to around 5.5% of total loans by the end of 2019, from 6.2% in 2018 and around 15% in 2016.

Household spending and both private and EU-backed investment are driving the economy. Lending growth will remain strong over the next 12 to 18 months and primarily focused on domestic households, but will moderate afterwards. Capital buffers and funding conditions are stable but profitability will weaken slightly as competition for loans keeps net interest margins tight and as provisioning costs normalise and operating costs rise.

“Banks will continue to rely on domestic deposits as their key funding source, a credit strength, while liquidity buffers will soften but remain high,” said Melina Skouridou, AVP-Analyst at Moody’s. “Operating conditions will remain favourable.”

Moody’s expects real GDP growth of 3.8% in 2019, and 3.2% in 2020, still well above the euro-area average of 1.9%. Deposits accounted for around 70% of total assets at the end of 2018 and will continue to be the banks’ main funding source. A high portion of foreign-currency deposits poses a refinancing risk, however.