Hungarian banks' bad loan rate peak seen at 7-10%

BUDAPEST Nov 2 (Reuters) - The Hungarian banks' non-performing loan (NPL) rate will peak at around 10 percent, under a worst case scenario but the sector has the capital to overcome the difficulties, the country's top bankers said.

"If the shape of the (global) recovery is a 'V', then the NPL rate will peak between 7 and 10 percent, which would mean risks costs at around 3-4 percent (of all lending)," Tamas Erdei, the Chairman of the Banking Association said.

"That's a manageable level as the sector is broadly there already," Erdei told a news conference.

Erdei's 7-10 percent forecast is above his earlier projection for an NPL peak rate between 5 and 8 percent and well above the 4 percent level at the end of last year.

But it is below Central Bank Deputy Governor Julia Kiraly's October forecast for a peak around 10 percent and her August projection for a peak at 13-15 percent.

Hungary's economy is expected to shrink by 6.7 percent this year and growth is not expected to return until 2011 as output is down by nearly a fifth, exports shrink, unemployment soars, consumption and real wages fall.

Rezso Nyers, the Association's General Secretary added that the sector is adequately capitalised to handle the expected portfolio worsening.

"Even under a worst case of a 10 percent (NPL) rate, the sector's capital adequacy ratio will stay above 10 percent," Nyers said.

Erdei added that lending, which fell by 4.2 percent in the first half compared with the end of last year, will stagnate in the first half of next year before albeit slow growth resumes in the second half.

"I think this will be a very gradual increase. I don't believe in boom theories," Erdei said.

"I think the economy has reached the bottom. Every indicator points that way," Erdei added. "But it will take a few more months - until spring - for this to run through the microeconomic cycle." (Reporting by Balazs Koranyi; Editing by Greg Mahlich)