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Rating Action:

Moody's takes rating actions on seven Hungarian commercial banks

25 Nov 2011

Milan, November 25, 2011 -- Moody's Investors Service has today taken the following rating actions on seven Hungarian commercial banks, to reflect the rating agency's lowering of the Hungarian government debt rating to Ba1 and the country's foreign-currency deposit ceiling to Ba2, announced on 24 November 2011:

(i) Downgraded FHB Mortgage Bank's long-term local and foreign-currency deposit ratings to Ba2 from Ba1, and MKB Bank's long-term local and foreign-currency deposit and debt ratings to Ba3 from Ba2.

(ii) Downgraded the foreign-currency deposit ratings of OTP, OTP Mortgage Bank, K&H Bank, and Budapest Bank to Ba2/Not-Prime from Baa3/Prime-3. Erste Bank Hungary's long-term foreign-currency deposit rating was also downgraded to Ba2 from Ba1.

(iii) Downgraded OTP and OTP Mortgage Bank's local-currency deposit ratings to Ba1/Not-Prime from Baa3/Prime-3, OTP's foreign-currency senior debt rating to Ba1 from Baa3, its subordinated debt rating to Ba2 from Ba1, and its junior subordinated debt rating to Ba3 (hyb) from Ba2 (hyb).

Whilst today's announcements reflect the rating actions on the Hungarian government debt rating and on the country's foreign-currency deposit ceiling, Moody's notes that the all the ratings of the Hungarian commercial banks remain on review for downgrade. This process started on 4 October 2011 and was triggered by Moody's concerns about how the government's policy decisions will affect the banks, which include measures on foreign-currency mortgages.

The full list of the affected ratings can be found at the end of this press release.

RATINGS RATIONALE

-- LOWER CAPACITY OF THE HUNGARIAN GOVERNMENT TO SUPPORT ITS BANKING SYSTEM

The downgrade of the Hungarian government's debt rating to Ba1 from Baa3 has prompted Moody's to lower its assessment of the capacity of the Hungarian government to support its banking system due to its reduced financial strength. This has prompted rating actions on two banks (i) a downgrade of FHB Mortgage Bank's long-term local-currency and foreign-currency deposit ratings; and (ii) a downgrade of MKB Bank's long-term local and foreign-currency deposit and senior debt ratings. These two banks were directly impacted by the sovereign debt downgrade as they are the only rated banks benefiting from rating uplift due to systemic support in their deposit ratings (one notch).

-- COUNTRY'S CEILING ON FOREIGN-CURRENCY DEPOSITS DOWNGRADED

The downgrade of the country's ceiling on foreign-currency bank deposit ratings to Ba2 from Baa3 has caused the downgrade of the foreign-currency deposit ratings of five Hungarian commercial banks. The foreign-currency deposit ratings of OTP, OTP Mortgage Bank, K&H Bank, Budapest Bank, and Erste Bank Hungary were downgraded to the same level of the country's ceiling on foreign-currency bank deposits.

-- STRONG LINKAGES BETWEEN OTP AND HUNGARY

Moody's also downgraded OTP and OTP Mortgage Bank's local-currency deposit ratings, as well as OTP's foreign-currency debt ratings. This reflects the banks' weaker positioning within the D+ BFSR category, now corresponding to a standalone rating of Ba1 from Baa3. The lower standalone rating for the banks reflects (i) OTP's operations, which are predominantly focused on Hungary; and (ii) its risk profile and access to funding, which are closely interlinked with the Hungary.

FOCUS OF THE ONGOING REVIEW FOR HUNGARIAN COMMERCIAL BANKS

The ongoing review initiated on 4 October 2011 will assess on a bank-by-bank basis the effect of the government law that gives foreign-currency mortgage borrowers the option (until February 2012) to repay their full mortgage balance at exchange rates below market rates.

The review will therefore take into account (i) the banks' exposure to foreign-currency mortgages; (ii) the rate at which borrowers will take advantage of the repayment option; (iii) the banks' profitability levels; and (iv) the capital buffers available. Moody's view is that there are considerable differences between the rated banks with respect to these metrics.

In addition, the review will focus on Moody's assumptions of the likelihood of systemic and parental support for Hungarian banks, given the overall weakening support environment (please refer to Moody's press release http://www.moodys.com/research/Moodys-places-ratings-of-seven-Hungarian-banks-on-review-for--PR_227206).

WHAT COULD CHANGE THE RATINGS UP/DOWN

All of the ratings are subject to changes of these banks' standalone financial strength ratings, as well as to any changes of Moody's assumptions of the likelihood of systemic and parental support. Please refer to www.moodys.com for a more detailed discussion of each institution's credit profile.

Moody's has taken the following rating actions:

OTP NyRt

- Local-currency deposit ratings downgraded to Ba1/Not-Prime from Baa3/Prime-3

- Foreign-currency deposit ratings downgraded to Ba2/Not-Prime from Baa3/Prime-3

- Foreign-currency senior unsecured debt rating downgraded to Ba1 from Baa3

- Foreign-currency subordinated debt rating (Lower Tier 2) downgraded to Ba2 from Ba1

- Foreign-currency junior subordinated debt rating (Upper Tier 2) downgraded to Ba3 (hyb) from Ba2 (hyb)

- D+ BFSR remained unchanged, but its corresponding standalone rating was lowered to Ba1 from Baa3

All the above ratings remain on review for downgrade.

OTP Mortgage Bank

- Local-currency deposit ratings downgraded to Ba1/Not-Prime from Baa3/Prime-3

- Foreign-currency deposit ratings downgraded to Ba2/Not-Prime from Baa3/Prime-3

- D+ BFSR remained unchanged, but its corresponding standalone rating was lowered to Ba1 from Baa3

All the above ratings remain on review for downgrade.

K&H Bank

- Foreign-currency deposit ratings downgraded to Ba2/Not-Prime from Baa3/Prime-3

- Local-currency deposit ratings of Baa3/Prime-3 remained unchanged

- D BFSR (mapping to Ba2 on the long-term scale) remained unchanged

All the above ratings remain on review for downgrade.

Budapest Bank

- Foreign-currency deposit ratings downgraded to Ba2/Not-Prime from Baa3/Prime-3

- Local-currency deposit ratings of Baa3/Prime-3 remained unchanged

- D- BFSR (mapping to Ba3 on the long-term scale) remained unchanged

All the above ratings remain on review for downgrade.

FHB Mortgage Bank

- Local-currency deposit ratings downgraded to Ba2/Not-Prime from Ba1/Not-Prime

- Foreign-currency deposit ratings downgraded to Ba2/Not-Prime from Ba1/Not-Prime

- D BFSR (mapping to Ba2 on the long-term scale) remained unchanged

All the above ratings remain on review for downgrade.

Erste Bank Hungary

- Foreign-currency deposit ratings downgraded to Ba2/Not-Prime from Ba1/Not-Prime

- Local-currency deposit ratings of Ba1/Not-Prime remained unchanged

- D- BFSR (mapping to Ba3 on the long-term scale) remained unchanged

All the above ratings remain on review for downgrade.

MKB Bank

- Local-currency deposit ratings downgraded to Ba3/Not-Prime from Ba2/Not-Prime

- Foreign-currency deposit ratings downgraded to Ba3/Not-Prime from Ba2/Not-Prime

- Foreign-currency senior unsecured debt rating downgraded to Ba3 from Ba2

- Foreign-currency subordinated debt rating (Lower Tier 2) of B1 was unchanged

- E+ BFSR (mapping to B1 on the long-term scale) was unchanged

All the above ratings remain on review for downgrade apart from E+ BFSR which has stable outlook.

PRINCIPAL METHODOLOGIES

The methodologies used in rating OTP Mortgage Bank, K&H Bank, Budapest Bank, FHB Mortgage Bank, and Erste Bank Hungary were Bank Financial Strength Ratings: Global Methodology published in February 2007, and Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology published in March 2007. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

The methodologies used in rating OTP Bank and MKB Bank were Bank Financial Strength Ratings: Global Methodology published in February 2007, Incorporation of Joint-Default Analysis into Moody's Bank Ratings: A Refined Methodology published in March 2007, and Moody's Guidelines for Rating Bank Hybrid Securities and Subordinated Debt published in November 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Headquartered in Budapest, Hungary, OTP Bank reported consolidated total assets of HUF9,712 billion (EUR36.3 billion) as of 30 June 2011.

Headquartered in Budapest, Hungary, OTP Mortgage Bank reported consolidated total assets of HUF1,645 billion (EUR6.15 billion) as of 30 June 2011.

Headquartered in Budapest, Hungary, K&H Bank reported consolidated total assets of HUF2,922 billion (EUR10.9 billion) as of 30 June 2011.

Headquartered in Budapest, Hungary, Budapest Bank reported consolidated total assets of HUF887 billion (EUR3.31 billion) as of 30 June 2011.

Headquartered in Budapest, Hungary, FHB Mortgage Bank reported consolidated total assets of HUF839.8 billion (EUR3.14 billion) as of 30 June 2011.

Headquartered in Budapest, Hungary, Erste Bank Hungary reported consolidated total assets of HUF3,300 billion (EUR12.3 billion) as of 30 June 2011.

Headquartered in Budapest, Hungary, MKB Bank reported consolidated total assets of HUF 2,818billion (EUR10.61 billion) as of 30 June 2011.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The deposit ratings of rated entity Kereskedelmi & Hitel Bank was initiated by Moody's and was not requested by the rated entity.

Kereskedelmi & Hitel Bank entity or its agent(s) participated in the rating process. This rated entity or its agent(s) provided Moody's access to the books, records and other relevant internal documents of the rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare each of the ratings are the following: parties involved in the ratings, public information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Moody's Investors Service may have provided Ancillary or Other Permissible Service(s) to the rated entity or its related third parties within the two years preceding the credit rating action. Please see the special report "Ancillary or other permissible services provided to entities rated by MIS's EU credit rating agencies" on the ratings disclosure page on our website www.moodys.com for further information.

In addition to the information provided below please find on the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued each of the ratings.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Simone Zampa
Vice President - Senior Analyst
Financial Institutions Group
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
Telephone:+39-02-9148-1100

Yves Lemay
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Italia S.r.l
Corso di Porta Romana 68
Milan 20122
Italy
Telephone:+39-02-9148-1100

Moody's takes rating actions on seven Hungarian commercial banks
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