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Moody’s More Optimistic About Hungary’s Banking System As Standard and Poor’s Upgrades MOL’s Outlook

By Tamás Székely // 2015.07.17.

Moody’s Investors Service has revised its outlook for Hungary’s banking system to stable from negative. Moody’s sees the bank sector operating environment stabilising in the coming 12-18 months. “We expect that the operating conditions for Hungarian banks will improve in 2015-16, amid relatively strong economic growth and a shift in the government’s policy stance towards banks,” said Armen Dallakyan, a senior analyst at Moody’s. Moody’s said the improvements in banks’ operating environment would help them return to profitability and stabilise their credit fundamentals, “albeit at weak levels”.

Asset quality should show an improving trend this year and next, Moody’s said, noting the positive impact of the recent government-mandated conversion of FX-denominated mortgages into forints, eliminating risk related to a possible devaluation of the local currency. Another government measure requiring lenders to compensate borrowers for making unilateral changes to contracts and using exchange rate margins when calculating repayments on FX loans is likely to shave 2-3 percentage points off the retail non-performing loan ratio, which stood at 22.4% at the end of last year, Moody’s said.

Meanwhile Standard and Poor’s said it revised its outlook on Hungarian oil and gas company MOL to positive from stable. S&P affirmed its ‘BB’ long-term corporate credit rating on MOL, as well as its ‘BB’ issue ratings on MOL’s senior unsecured debt instruments and the ‘B’ issue ratings on the group’s junior subordinated debt. “The positive outlook reflects our view that MOL’s financial risk profile could strengthen over the next 18 months on the back of stronger performance than we currently expect in our base-case scenario,” the ratings agency said. S&P said it sees MOL’s oil production increasing over the next year and a half, and it assumes oil prices will recover. The performance of MOL’s downstream business could be supported by an efficiency improvement plan and retail growth strategy the company is implementing, it added.

via and MTI photo: Emmanuel Dunand – AFP