VIENNA (Reuters) - Hungarian banks are well capitalized and their parent firms have pledged to back them, but the financial crisis will hurt portfolio quality as growth sags and access to credit tightens, a top central banker said.
The central bank will revise the country's 2009 growth forecast down substantially in November and banks will be forced to tighten lending but the sector is not facing any of the financial problems seen elsewhere in Europe, National Bank of Hungary Deputy Governor Ferenc Karvalits told Reuters.
"Our (2009 growth) forecast will definitely be revised substantially to the downside," Karvalits told the Reuters Central European Investment Summit on Tuesday. "Most probably in the baseline scenario it will be a positive figure."
Hungary's government cut its 2009 growth forecast to 1.2 percent last week from 3 percent but some analysts have projected negative growth for some quarters.
"The capital position of banks is very good," Karvalits said. "Most are owned by strategic investors ... and the risk absorption capacity of banks is appropriate."
Nearly half of banks' lending portfolio is in foreign currencies and investors, who have dumped Hungarian assets in recent weeks, are concerned that this exposure makes Hungary one of the most vulnerable economies in the European Union.
But Karvalits said that fears over the impact of the weaker forint on banks' large foreign currency denominated portfolio are exaggerated.
"In the past, we had substantial devaluation of the currency, even more substantial than now ... and we didn't notice any substantial deterioration of portfolio quality," Karvalits said.
Hungary's forint fell to a two-year low of 276.5 versus the euro on Wednesday while the shares of OTP Bank OTPB.BU, the country's biggest lender and only major independent bank fell to their lowest level since late 2003, in part on investor concerns about the stability of Hungary's financial system and reliance on external financing.
A dry swaps market has also made it difficult for banks to cover their foreign exchange loans but Karvalist said that markets are slowly beginning to function.
PARENTS COMMITTED
Karvalits played down risks over external financing by banks saying that most of financing is done by the parent firms of Hungary's banks, which lends stability to the system.
"We are in close relationships with (parent) institutions, and all are committed to their daughter companies," he said.
"If you look at the funding side of these institutions, you find that two thirds of funding comes from mother companies... These institutions have long-term commitments and we can assume they will provide this funding."
Hungary's biggest banks are owned by Belgium's KBC (KBC.BR: Quote, Profile, Research, Stock Buzz), Germany's BayernLB (BLGGgg.F: Quote, Profile, Research, Stock Buzz), Italy's Intesa Sanpaolo (ISP.MI: Quote, Profile, Research, Stock Buzz) and UniCredit (CRDI.MI: Quote, Profile, Research, Stock Buzz) and Austria's Erste Group Bank (ERST.VI: Quote, Profile, Research, Stock Buzz) and Raiffeisen International (RIBH.VI: Quote, Profile, Research, Stock Buzz). Continued...
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