In the month of June 2016, the share of forex debt within the total volume of state debt was down by 5 percent year-on-year. Positive fiscal processes have also been recognized in the latest analysis by Moody’s Investors Service. The rating agency is expecting Hungary’s government debt-to-GDP ratio to decline further in coming years.

Moody’s states that the decline of this indicator will be attributable in the next two years to the Government’s fiscal policy, and the economic upturn, which is set to follow a transitory slow-down.

The Ministry for National Economy welcomes the fact that the share of forex debt within the total debt volume has gradually declined from 52 percent at the end of 2011, as it shows that the Government’s relevant measures have taken effect. One of these efforts has been the Government-initiated campaign for promoting government securities for retail investors which has achieved that 14 percent of the volume of government securities is now owned by households. And, as a result of a self-financing programme, 29 percent of state bonds are now being held by banks. This has reduced holdings of foreign investors, and non-residents now possess only 39 percent of government securities and 44 percent of the total volume of government debt. As a consequence, not only the country’s exposure to exchange rate fluctuations but its external vulnerability has also been reduced.

Recent years have proven that lower financial exposure is of significant value. Better risk indicators have led to lower yields on government securities, to lower interest payments and accordingly to cheaper debt financing. The amount thus saved can be allocated for other objectives, such as investment or development projects and higher wages.

Budapest, December 17 (MTI) – Hungary’s efforts to reduce the public debt have been hindered by a protracted dispute with the European Union concerning the accounting of 600 billion forints (EUR 1.9bn) of EU payments, Economy Minister Mihaly Varga said on Thursday.

In the meantime, the government has had to fund projects using its own resources, Varga said in an interview to weekly Figyelo. It looks like Brussels is trying to undermine Hungary’s debt reduction efforts, he added.

The budget deficit is expected to be around 2.2 percent of GDP this year, below the target of 2.4 percent. But in the case of the public debt, “the situation is slightly different”, he added.

“For four years, we have always fulfilled the targets set by the law and will try to do the same this year,” Varga said.

The state is planning to renew in Chinese Renminbi part of the 5-5.5 billion euros FX debt expiring next year, Varga said. What is important is not the amount but the fact that new relations have been established that “could make the financing of state securities safer,” he added.

Also, Varga said real wages would have to rise by 2.5-4.5 percent to support domestic consumption.

In an interview published by Reuters on the same day, Varga said that he saw a good chance for MKB Bank and Budapest Bank to be privatised next year.

Talking about the euro-forint exchange rate Varga said forint levels around 308-310 per euro “would be better” and there is still a chance for the forint to firm in the remainder of the year.

Varga said there was a good chance this year for the state debt to decline from last year’s 76.2 percent of GDP. He said the government planned a further reduction in the budget deficit to 1.7 percent of GDP in 2017 and 1.6 percent in 2018, from less than 2.4 percent this year.

Varga said it was “very important” that Hungary should issue a renminbi-denominated bond next year under a deal signed with China in November. The upper limit of this issue could be 3 billion yuan and Hungary would decide later next year whether it would tap international markets in other currencies as well or refinance expiring debt from domestic issuance.

“We’ll see around the end of February how yields perform, whether debt agency AKK should continue to be active in the domestic market or go out again (to international markets)”, he told Reuters.

The minister noted that even with the privatisation of MKB and Budapest Bank the proportion of Hungarian ownership within the bank sector, currently close to 60 percent of the balance sheet total, should not decrease.

Photo: MTI

Budapest, December 16 (MTI) – Hungary’s foreign debt manager AKK plans gross issuance of 6,389 billion forints (EUR 20.25bn) next year, a debt management outlook released on Wednesday shows.

AKK noted that 91 percent of the planned issuance would be in domestic currency. It also plans the issue of the equivalent of 1 billion euros of international bonds and a further 750,000 euros of domestic Residency Bonds and Premium Euro Hungarian Government Bonds.

Net issuance is set to reach 1,008 billion forints as net domestic issuance comes to 1,979 billion forints and the government repays net 971 billion forints of forex debt.

AKK reiterated its three main objectives in the report: to support the reduction of state debt, to increase the retail financing of the debt and to “significantly reduce” the share of FX debt.

AKK lowered its benchmark for the share of FX debt from 40 percent this year to “below 35 percent and declining” for 2016. It added that FX obligations after swaps should be 100 percent in euros, allowing for a 5 percent deviation.

London (MTI) – The operating environment for banks in Hungary has improved, due to positive developments in the economy and the government’s intention to facilitate a gradual normalisation of the banking business environment, Fitch Ratings said on Friday.

The ratings agency said in a peer review of Hungarian banks that the government’s commitment is reflected in the memorandum signed with the EBRD in February in which the government pledged to refrain from implementing new onerous banking legislation and to reduce the bank levy in 2016 and then further in 2017.

The Hungarian banking system is likely to be profitable in 2015 after an all-time high loss in 2014. However, prospects for the sector remain weak due to muted appetite for new credit in the economy, substantial legacy problem loans and thin margins in light of low interest rates, Fitch Ratings said.

Banks are unlikely to return to pre-crisis profitability because previous results were inflated by rapid growth and relaxed lending standards, and the regulatory environment has become much more restrictive, including increased capital requirements, Fitch Ratings said.

However, the inflow of new problem loans has reached its peak and asset quality should remain broadly stable in the near future due to muted credit growth and elimination of FX-induced credit risks in residential mortgages.

The sector’s liquidity in forints is strong and banks improved their self-financing capacity after the conversion of FX mortgages. Capitalisation remains a weakness at several large banks, but this pressure is mitigated by loan book deleveraging and capital injections from foreign parent banks, Fitch added.

Budapest, June 24 (MTI) – It is conceivable that Hungary may issue foreign currency bonds if developments on the market warrant such a move, though the government is focusing on financing mainly using forint-denominated securities, the economy minister said.

In an interview to Wednesday’s Napi Gazdasag daily, Mihaly Varga also said that it was possible the state would acquire more shares in the banking sector.

Talking about the budget, Varga said experts were continually monitoring budgetary trends and there was no sign the government would miss its deficit target. In fact, growth is expected to be more positive than initially forecast, and a decline in yields since means there is more fiscal room for manoeuvre, he added.

On the topic of loans in foreign currency, the minister said the central bank and the banking association were examining the possibility of forint conversions of the remaining, negligible amount of retail FX debt.

Photo: MTI