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Rating Action:

Moody's downgrades foreign currency deposit ratings of 8 Hungarian banks

31 Mar 2009

Rating agency also places on review a number of other bank ratings in Hungary; rating action follows downgrade of government ratings

New York, March 31, 2009 -- Moody's Investors Service today announced that it has downgraded to Baa1 from A3 the long-term foreign currency deposit ratings of the following eight Hungarian banks: OTP Bank, OTP Mortgage Bank, CIB Bank, Kereskedelmi & Hitel Bank ("K&H Bank"), MKB Bank, Erste Bank Hungary, Budapest Bank and MFB Hungarian Development Bank. The ratings have a negative outlook, except in the case of Erste Bank Hungary where the Baa1 long-term foreign currency deposit rating was placed on review for possible downgrade. Moody's also downgraded MFB Hungarian Development Bank's long-term foreign currency debt rating to Aa2 from Aa1; the rating remains on review for possible further downgrade.

Moody's said that these rating actions followed the downgrade to Baa1 from A3 of the Hungarian government's local and foreign currency bond ratings and of the country ceiling for foreign currency deposits. The outlook for these sovereign ratings is negative. Hungary's country ceiling for foreign currency bonds was downgraded from Aa1 to Aa2 with negative outlook. The Aaa local currency deposit and debt ceilings were not affected by this rating action.

Moody's also took a number of other rating actions on Hungarian banks, which are detailed below. According to Moody's, these rating actions are driven by considerations regarding the appropriate level of systemic and parental support given the difficult operating environment faced by the Hungarian banks, and indeed in many cases by their foreign parents. The following rating actions were taken:

OTP Bank and OTP Mortgage Bank

Moody's placed on review for possible downgrade OTP Bank's Prime-1 short-term local currency deposit and foreign currency debt ratings. The existing review on OTP Bank's debt and deposit ratings (initiated in November 2008), and the review on the short-term ratings initiated today, will focus on assessing the bank's intrinsic financial strength as well as the ability and the willingness of the State to support the bank. The bank's Bank Financial Strength Rating (BFSR) and long-term ratings were placed on review on 7 November 2008. The Prime-1 short-term foreign currency deposit rating of OTP Mortgage Bank was also placed on review for possible downgrade today, together with the review of the parent's short-term ratings, as the mortgage bank's ratings are driven by the close integration of the two entities.

CIB Bank

Moody's placed on review for possible downgrade CIB Bank's Prime-1 short-term local currency deposit rating. The existing review on CIB Bank's debt and deposit ratings (initiated in January 2009), and the review on the short-term rating initiated today, will focus on assessing the bank's intrinsic financial strength as well as the ability and the willingness of the parent, Intesa SanPaolo (rated Aa2/Prime-1/B-), and the Hungarian State to support the bank. CIB Bank's BFSR and long-term ratings were placed on review on 27 January 2009.

K&H Bank

Moody's placed on review for possible downgrade the Aa3 long-term local currency deposit rating of K&H Bank. The review will focus on assessing the ability and the willingness of the parent, KBC Bank N.V. (rated Aa3/Prime-1/C+), and the State to support the bank. K&H Bank's BFSR of C- and long-term foreign currency deposit rating of Baa1 are not on review, and both have a negative outlook.

MKB Bank

Moody's placed on review for possible downgrade MKB's Prime-1 short-term local currency deposit and foreign currency debt ratings. The existing review on MKB's debt and deposit ratings (initiated in December 2008), and the review on the short-term ratings initiated today, will focus on assessing the ability and the willingness of the parent and the State to support the bank. MKB's long term ratings were placed on review on 2 December 2008, following the review initiated on the Aa2 long-term debt and deposit ratings and the C- BFSR ratings of its parent, Bayerische Landesbank.

Erste Bank Hungary

Moody's placed on review for possible downgrade Erste Bank Hungary's long-term foreign currency deposit rating of Baa1 following its downgrade from A3. The local currency deposit ratings of A2/Prime-1 were placed on review on 12 December 2008, after the ratings of the parent, Erste Group Bank (rated Aa3/Prime-1/C) were placed on review for possible downgrade. However, the review on Erste Bank Hungary's debt and deposit ratings (initiated on 12 December 2008), and the review on the long-term deposit rating initiated today, will focus also on assessing the ability and the willingness of the parent, Erste Group Bank, and the State to support the bank.

Budapest Bank

Moody's placed on review for possible downgrade Budapest Bank's local currency deposit ratings of A1/Prime-1. The review on Budapest Bank's local currency deposit ratings will focus on assessing the ability and the willingness of the parent, GE Capital (rated Aa2), and the State to support the bank.

FHB Mortgage Bank

FHB Mortgage Bank was not affected by the downgrade of the sovereign ratings, but its local and foreign currency deposit ratings of Baa3/Prime-3 were placed on review for possible downgrade. The review will focus on assessing the ability and the willingness of the State to support the bank. The rating action is not related to the bank's announcement of a capital increase by the State, which is expected to be realised in May 2009 after the bank's General Meeting. We view the strengthening of the capital of the bank by the State, which is already one of its shareholders, to be positive and the assessment of its impact on the bank's capitalisation and loss absorption capacity will form part of the review.

MFB Hungarian Development Bank

Moody's placed on review for possible downgrade MFB Hungarian Development Bank's foreign currency debt rating of Aa2 following its downgrade from Aa1. The review, which was initiated on 19 February 2009 but has not yet been concluded, will focus on the willingness and ability of the State to support the bank in the current -- more difficult -- operating environment.

Moody's took the following rating actions:

OTP Bank:

- Long-term foreign currency deposit rating was downgraded to Baa1 (negative) from A3 (negative)

- Short-term local currency deposit rating of Prime-1 was placed on review for possible downgrade

- Short-term foreign currency debt rating of Prime-1 was placed on review for possible downgrade

- BFSR of C+ on review for possible downgrade was not affected by today's rating actions

- Long-term local currency deposit rating of Aa3 on review for possible downgrade was not affected

- Long-term foreign currency debt rating of Aa3 on review for possible downgrade was not affected

- Long-term foreign currency subordinated debt rating of A1 on review for possible downgrade was not affected

- Short-term foreign currency deposit rating of Prime-2 was not affected

OTP Mortgage Bank

- Long-term foreign currency deposit rating was downgraded to Baa1 (negative) from A3 (negative)

- Short-term local currency deposit rating of Prime-1 was placed on review for possible downgrade

- BFSR of C+ on review for possible downgrade was not affected

- Long-term local currency deposit rating of Aa3 on review for possible downgrade was not affected

- Short-term foreign currency deposit rating of Prime-2 was not affected

CIB Bank:

- Long-term foreign currency deposit rating was downgraded to Baa1 (negative) from A3 (negative)

- Short-term local currency deposit rating of Prime-1 was placed on review for possible downgrade

- BFSR of C- on review for possible downgrade was not affected

- Long-term local currency deposit rating of Aa3 on review for possible downgrade was not affected

- Long-term local currency debt rating of Aa3 on review for possible downgrade was not affected

- Short-term foreign currency deposit rating of Prime-2 was not affected

K&H Bank

- Long-term foreign currency deposit rating was downgraded to Baa1 (negative) from A3 (negative)

- Long-term local currency deposit rating of Aa3 was placed on review for possible downgrade

- BFSR of C- with negative outlook was not affected

- Short-term local currency deposit rating of Prime-1 was not affected

- Short-term foreign currency deposit rating of Prime-2 was not affected

MKB

- Long-term foreign currency deposit rating was downgraded to Baa1 (negative) from A3 (negative)

- Short-term local currency deposit rating of Prime-1 was placed on review for possible downgrade

- Short-term foreign currency debt rating of Prime-1 was placed on review for possible downgrade

- BFSR of C- with negative outlook was not affected

- Long-term local currency deposit rating of A1 on review for possible downgrade was not affected

- Long-term foreign currency debt rating of A1 on review for possible downgrade was not affected

- Long-term foreign currency subordinated debt rating of A2 on review for possible downgrade was not affected

- Short-term foreign currency deposit rating of Prime-2 was not affected

Erste Bank Hungary

- Long-term foreign currency deposit rating was downgraded from A3 (negative) to Baa1 and placed on review for possible further downgrade

- BFSR of D+ was not affected

- Long-term local currency deposit rating of A2 on review for possible downgrade was not affected

- Short-term local currency deposit rating of Prime-1 on review for possible downgrade was not affected

- Short-term foreign currency deposit rating of Prime-2 was not affected

Budapest Bank

- Long-term foreign currency deposit rating was downgraded to Baa1 (negative) from A3 (negative)

- Long-term local currency deposit rating of A1 was placed on review for possible downgrade

- Short-term local currency deposit rating of Prime-1 was placed on review for possible downgrade

- BFSR of D+ was not affected

- Short-term foreign currency deposit rating of Prime-2 was not affected

FHB Mortgage Bank

- Long-term local currency deposit rating of Baa3 was placed on review for possible downgrade

- Long-term foreign currency deposit rating of Baa3 was placed on review for possible downgrade

- Short-term local currency deposit rating of Prime-3 was placed on review for possible downgrade

- Short-term foreign currency deposit rating of Prime-3 was placed on review for possible downgrade

- BFSR of D+ was not affected

MFB Hungarian Development Bank

- Long-term foreign currency deposit rating was downgraded to Baa1 (negative) from A3 (negative)

- Long-term foreign currency debt rating was downgraded from Aa1 to Aa2 and placed on review for possible further downgrade

- Short-term foreign currency deposit rating of Prime-2 was not affected

The principal methodologies used in the above-mentioned rating actions are "Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology" and "Bank Financial Strength Ratings: Global Methodology", which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings Methodologies subdirectory. Other methodologies and factors that may have been considered can also be found in the Credit Policy & Methodologies directory.

Moody's previous rating action on OTP Bank was on 7 November 2008, when the following ratings were placed on review for possible downgrade: the C+ bank BFSR, the Aa3 long-term local currency deposit rating, the Aa3 long-term foreign currency senior debt ratings and the A1 foreign currency subordinated debt ratings. Additionally, following the rating action on Hungary's sovereign ratings, Moody's downgraded OTP Bank's foreign currency deposit ratings to A3/Prime-2 (negative outlook) from A2/Prime-1 (stable outlook). Headquartered in Budapest, Hungary, OTP Bank reported consolidated IFRS net income of HUF303.4 billion (EUR1.14 billion) in 2008 and total assets of HUF9.442 trillion (EUR35.48 billion) as of 31 December 2008.

Moody's previous rating action on OTP Mortgage Bank was on 7 November 2008, following the rating action on OTP Bank, placing on review for possible downgrade its C+ BFSR and Aa3 local currency deposit ratings. Moody's also downgraded OTP Mortgage Bank's foreign currency deposit ratings to A3/Prime-2 (negative outlook) from A2/Prime-1 (stable outlook). Headquartered in Budapest, Hungary, OTP Mortgage Bank reported audited IFRS net income of HUF5.3 billion (EUR21 million) in 2007 and total assets of HUF1.239 trillion (EUR4.9 billion) as of 31 December 2007.

Moody's previous rating action on CIB Bank was on 27 January 2009, when the bank's long-term local currency deposit and debt ratings of Aa3 and BFSR of C- were placed on a review for possible downgrade. Headquartered in Budapest, Hungary, CIB Bank reported IFRS consolidated net income of HUF28.162 billion (EUR105.9 million) in 2008 and total assets of HUF3.038 trillion (EUR11.42billion) as of 31 December 2008.

Moody's previous rating action on K&H Bank was on 26 January 2009, when the outlook on K&H Bank's BFSR of C- was changed to negative from stable. Headquartered in Budapest, Hungary, K&H Bank reported IFRS consolidated net income of HUF19.05 billion (EUR81 million) in H1 2008 and total assets of HUF2.523 billion (EUR10.73 billion) as of 30 June 2008.

Moody's previous rating action on MKB Bank was on 3 December 2008, when the bank's long-term local currency deposit rating was downgraded to A1 from Aa3, after changing the bank's Baseline Credit Assessment (BCA) to Baa2 from Baa1. The BFSR of C- was affirmed but its outlook was changed to negative from stable. Moody's also downgraded the bank's long-term senior unsecured debt ratings to A1 from Aa3 and subordinated debt ratings to A2 from A1. The long-term local currency deposit rating of A1 and senior and subordinated debt ratings of A1 and A2, respectively, were placed on review for possible downgrade due to the review for possible downgrade of the BFSR and the debt and deposit ratings of MKB Bank's parent, Bayerische Landesbank. Headquartered in Budapest, Hungary, MKB Bank reported IFRS consolidated 2008 net income of HUF 7,160 million (EUR 27.04 million) and total assets of HUF 2,885 billion (EUR 10.90 billion) as of 31 December 2008.

Moody's previous rating action on Erste Bank Hungary was on 12 December 2008, when the A2/Prime-1 local currency deposit ratings of were placed on review for possible downgrade following Moody's decision to place on review for possible downgrade the ratings of its parent bank, Austria's Erste Group Bank AG. Headquartered in Budapest, Hungary, Erste Bank Hungary reported IFRS consolidated net income of HUF32.36 billion (EUR121.7) in 2008 and total assets of HUF2.630 trillion (EUR9.88 billion) as of 31 December 2008.

Moody's previous rating action on Budapest Bank was on 7 November 2008, when the bank's foreign currency deposit ratings were downgraded to A3 (negative)/Prime-2 from A2 (stable)/Prime-1, following the downgrade of Hungary's sovereign ratings. Headquartered in Budapest, Hungary, Budapest Bank reported consolidated net income of HUF7.4 billion (EUR29 million) and total assets of HUF814 billion (EUR3.22 billion) as of 31 December 2007.

Moody's previous rating action on FHB Mortgage Bank was on 4 September 2007, when the bank's foreign currency bank deposit ratings were downgraded to Baa3/Prime-3 from A2/Prime-1 after the State reduced its ownership in the bank. At the same time Moody's affirmed the D+ BFSR and assigned local currency bank deposit ratings, also Baa3/Prime-3. Headquartered in Budapest, Hungary, FHB Mortgage Bank reported consolidated IFRS net income of HUF6.7 billion (EUR25.2 million) in 2008 and total assets of HUF689 billion (EUR2.59 billion) as of 31 December 2008.

Moody's previous rating action on MFB Hungarian Development Bank was on 19 February 2009, when the Aa1 long-term foreign currency debt rating of the bank was placed on review for possible downgrade. Headquartered in Budapest, Hungary, MFB reported IFRS 2007 net income of HUF9.9 billion (EUR38.9 million) and total assets of HUF890 billion (EUR3.5 billion) as of 31 December 2007.

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

London
Gabriel Kadasi
Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's downgrades foreign currency deposit ratings of 8 Hungarian banks
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