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Announcement:

MOODY'S REPORTS: HUNGARIAN BANKING SYSTEM'S STABILITY REMAINS UNDERPINNED BY FOREIGN OWNERSHIP AND GROWTH POTENTIAL IN RETAIL MARKET

10 Apr 2006
MOODY'S REPORTS: HUNGARIAN BANKING SYSTEM'S STABILITY REMAINS UNDERPINNED BY FOREIGN OWNERSHIP AND GROWTH POTENTIAL IN RETAIL MARKET

London, 10 April 2006 -- The stable outlook for the financial strength ratings (FSRs) of the Hungarian banks rated by Moody's Investors Service continues to reflect the benefits that many of the banks have received from their foreign shareholders, the rating agency says in its recently published Banking System Outlook on Hungary. The creditworthiness of the Hungarian banking system has improved significantly as the foreign owners have driven structural improvements in areas such as risk management, quality of service and product expertise, especially in retail banking, as well as providing financial support to the banks. These improvements, together with the banks' strong and defensible domestic franchises, underpin their FSRs. Indeed, the Hungarian banking market, which is one of the most developed in Central Europe, is converging with Western standards and thus has one of the highest weighted bank FSRs in Central Europe, Moody's notes.

"The A2 average foreign currency bank deposit ratings of the rated Hungarian banks reflect the expectation of external support from their respective owners," says the report's author Ross Abercromby, a Moody's Assistant Vice President. Foreign investment in the Hungarian banking system is relatively high at around 80% of registered capital, with the majority of the larger banks having Western European or US banks as majority shareholders. The A2 average deposit and debt ratings of the banks rated by Moody's reflects in most cases the expected support by either the major shareholder or, in the case of the Hungarian Development Bank (MFB) and the Land and Credit Bank (FHB), the Hungarian government. "Moody's would expect these shareholders to offer financial support in the case of need," Abercromby adds. OTP, the largest bank in Hungary and the bank with the highest FSR, is the only major bank which does not have a majority shareholder.

Hungarian banks are generally focusing on improving their positions in the retail banking market as it offers relatively low risk (especially in the mortgage market), higher margins than corporate activities and strong growth potential. In addition, banks have significantly improved the quality of their services. However, corporate lending and, increasingly, lending to small- and medium-sized enterprises (SMEs) remain the largest part of most banks' loan portfolios. Whilst corporate lending continues to grow driven by export markets, the SME sector is becoming an area of focus for many banks. Nonetheless, Moody's notes favourably that banks are continuing to adopt a prudent approach when granting loans to SMEs. This is particularly significant given the higher risk posed by this sector due to the relative lack of information and transparency, and the fact that banks' risk-management tools have only recently been implemented and have therefore not been tested through a downturn in the Hungarian economy.

"The overall risk profile of the Hungarian banks is good. Credit risk management has improved significantly as new systems have been introduced, although the significant increase in foreign currency, consumer finance and SME lending, together with the increasing debt burden of Hungarian households, could lead to deterioration in asset quality in the medium term," Abercromby cautions. Market risk remains modest as few banks are engaged in substantial trading activities. However, operational risk persists, as banks are still rationalising and implementing new information systems, and expanding their retail operations.

Liquidity in the Hungarian banking system remains adequate, although the rapid growth in lending led to the loans-to-deposits ratio exceeding 100% in 2004. Moody's views the capitalisation of Hungarian banks as remaining solid, based on their good profitability and their overall limited risk profile.

* * * *

NOTE TO JOURNALISTS ONLY: For a copy of this report, please contact Daniel Piels in London +44-20-7772-5456; New York Press Information +1-212-553-0376; Juan Pablo Soriano in Madrid +34-91-310-1454; Henry MacNevin in Milan +39-02-58-215-580; Eric de Bodard in Paris +331-5330-1076; Detlef Scholz in Frankfurt +49-69-707-30-700; Mardig Haladjian in Limassol +357-25-586-586; Alex Sazhin in Moscow +7495-514-1670; Petr Vins in Prague +4202 2422 2929; Tokyo Press Information +813-5408-4110; Hilary Parkes in Toronto +1-416-214-1635; Hong Kong Press Information +852-2916-1150; Melinda Keating in Sydney +612 9270 8141; Luiz Tess in São Paulo +55-11-3443-7444; Alberto Jones Tamayo in Mexico City +5255-9171-1824; Daniel Rúas in Buenos Aires +54 11-4816-2332 ext. 105; or Reynold Leegerstee in Johannesburg +27-11-217-5471 or visit our web site at www.moodys.com

London
Adel Satel
Managing Director
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Ross Abercromby
Asst Vice President - Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

No Related Data.
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