MOODY'S UPGRADES THE LONG-TERM DEPOSIT RATINGS OF THREE HUNGARIAN BANKS, AND THE BANK FINANCIAL STRENGTH RATING OF ONE BANK
Limassol, 02-06-97 -- Moody's Investors Service raised the long-term deposit ratings of three Hungarian banks to Ba1, placing the ratings at the sovereign ceiling for ratings of foreign currency-denominated deposits. The banks affected were Orszagos Takarekpenztar es Kereskedelmi Bank Rt., Magyar Kulkereskedelmi Bank Rt., and Magyar Hitel Bank Rt. At the same time, Moody's raised the financial strength rating of Magyar Hitel Bank Rt. to D from E+ citing restructuring over the last year, and the purchase of Magyar Hitel Bank by ABN AMRO Bank N.V. of the Netherlands, which will lead to a major capital injection. The long-term deposit rating of Kereskedelmi & Hitel Bank Rt., and Postabank es Takarekpenztar Rt. were confirmed at Ba2. The short-term bank deposits ratings of all the banks were confirmed at Not Prime, the sovereign ceiling for ratings of short-term foreign currency-denominated deposits.
Moody's said the rating actions conclude its review of the Hungarian banks. The bank review was prompted by an upgrade of the Hungarian sovereign rating ceilings, as well as by the restructuring and development that has been on-going in the sector over the last year. In December 1996, Moody's raised the ceiling for ratings of foreign currency-denominated long-term bank deposits for issuers domiciled in Hungary to Ba1, and confirmed its sovereign ceiling for ratings of foreign currency-denominated short-term bank deposits at Not Prime.
Moody's noted, that Orszagos Takarekpenztar es Kereskedelmi Bank Rt. (OTP), continues to maintain the largest banking franchise in Hungary. Although it is predominately retail, it has also grown a considerable commercial business, over the last five years. OTP's large customer base offers much potential. The bank also is a net provider of funds to the banking system. OTP appears to be making steady, if slow, progress developing and rationalizing its large banking network. Moody's believes it still faces significant challenges, however. Recent growth has been sluggish, and the bank's profitability is moderate given the high inflation rate in Hungary. The bank's overhead is heavy, and it generates modest fee income for a bank with its customer base. OTP needs to further rationalize its delivery network, and complete installation of its integrated management information system to realize further efficiencies.
Magyar Kulkereskedelmi Bank Rt. (MKB) has developed a high profile in the corporate sector, and it retains a leading position in international payments and trade finance. Moody's noted that the bank has a strong strategic investor in Bayerische Landesbank (BLB), which acquired a controlling interest in the bank by buying the state's remaining - ownership in early 1996. BLB is likely to support MKB's development. Although in light of the high inflation rate in Hungary the bank's returns may not be considered strong, MKB produces good returns relative to the other large banks in Hungary, and its profit trends have been positive. The bank's ratio of problem loans to total loans has trended down rather significantly over the last four years. Recent loan growth has been relatively high, though, accounting for some of the decline. Although customer deposits greatly exceed customer loans, MKB is in the position of having more domestic currency loans than deposits because its deposit base has been historically oriented toward foreign currency. The bank manages a moderate foreign currency short position, and it remains a strategic objective of the bank to grow the proportion of local currency deposits in its funding base.
Moody's noted that Magyar Hitel Bank (MHB) now has a very strong owner in ABN AMRO Bank NV, that is likely to be very supportive. ABN AMRO Bank purchased about 95% of MHB in December 1996, offered to purchase remaining shares, and committed itself to injecting additional capital into the bank. This should more than double the capital base of the bank. MHB still has a high level of problem loans, but the loans appear to be relatively well provided at this point in time, Moody's said. The bank's return on assets has rebounded, in part, as a result of a release of provisions. After declining in recent years, customer loans and deposits began to grow again in 1996. Restructuring initiatives already taken by the bank, together with input from ABN AMRO, should help revitalize MHB and enable it to become a strong competitor.
Moody's said Kereskedelmi & Hitel Bank Rt. (KHB) remains majority-owned by the state, but is expected to be privatized this year, with a strategic investor taking at least 25% ownership and the injection of new capital. KHB continues to maintain a large share of the market. In part, as a result of government assistance over the last few years, KHB has greatly reduced its level of problem loans. Good progress also has been made in rationalizing the organization, by ridding the group of its holding company structure, earmarking the sale of nonstrategic investments, cutting staff, and initiating the installation of modern information technology. However, the restructuring is not complete, and the bank has lost some momentum in the market as a result of its focus on these activities. Moody's said that the bank has a positive rating outlook given its anticipated privatization, and the expectation that it will begin to pay dividends on its preferred stock again.
Postabank es Takarekpenztar Rt (PB) is now the second biggest bank in Hungary in terms of assets, Moody's said. The bank has undergone very quick development. It will now need to improve its efficiency. The bank's profitability is moderate in light of the high inflation rate in Hungary. Postabank's overhead is high, and its net interest margin should come under pressure as inflation declines. The bank will need to restrain its overhead growth in order to maintain its profitability at current levels, Moody's said. The bank has a below average level of qualified assets to total assets; however, its loans have grown at a high rate in a transforming market. The bank has been successful in developing a large retail deposit base, but a high percentage of its retail funds is gathered from Post Office counters. Postabank does not have an exclusive contract with the Post Office. The bank has increased its risk-based capital adequacy ratio to about 11%. Additional fresh capital may be needed if the bank is to continue to develop its own banking network.
Rating action summary:
Orszagos Takarekpenztar es Kereskedelmi Bank Rt. -- rating for long-term deposits raised to Ba1 from Ba2, rating for short-term deposits confirmed at Not Prime, and bank financial strength rating confirmed at D+.
Magyar Kulkereskedelmi Bank Rt. -- rating for long-term deposits raised to Ba1 from Ba2, rating for short-term deposits confirmed at Not Prime, and bank financial strength rating confirmed at D+.
Magyar Hitel Bank Rt. -- rating for long-term deposits raised to Ba1 from Ba3, rating for short-term deposits confirmed at Not Prime, and bank financial strength rating raised to D from E+.
Kereskedelmi & Hitel Bank Rt. -- rating for long-term deposits confirmed at Ba2, rating for short-term deposits confirmed at Not Prime, and bank financial strength rating confirmed at D.
Postabank es Takarekpenztar Rt. -- rating for long-term deposits confirmed at Ba2, rating for short-term deposits confirmed at Not Prime, and bank financial strength rating confirmed at D.
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