October 6, 2016 / 12:17 PM / 10 months ago

Low rates to squeeze banks in Hungary for years -CEOs

3 Min Read

BUDAPEST, Oct 6 (Reuters) - Record-low interest rates will keep squeezing revenue and profits at banks in Hungary in the coming years even though all major lenders expect to achieve profits this year, top bankers said on Thursday.

Banks say that just as they start to recover from years of extra taxes and costly measures to help borrowers under Prime Minister Viktor Orban, low interest rates look set to weigh on them over the next 2-3 years.

The National Bank of Hungary has cut interest rates to a record-low 0.9 percent to combat low inflation and implemented a raft of monetary easing measures to bring down borrowing costs and help government efforts to boost economic growth.

"Given the pace at which margins and revenues are falling, I am certain that the current dynamics will continue," Erste Bank Hungary Chief Executive Radovan Jelasity told a conference organised by financial news website portfolio.hu.

"From the aspect of profitability, everybody is waiting for interest rates to rise," Jelasity said. "The question is who will last that long."

Low interest rates are squeezing banks globally.

Hungary's central bank said it would keep its base rate steady for the foreseeable future as it tries to lift inflation to its 3 percent target.

"Let us not be blinded," the Chief Executive of Raiffeisen Bank's Hungarian unit told the conference, adding that the sector's profit figures for the year almost "look too good to be true."

He said this year's profits were heavily influenced by lower risk costs as banks released provisions built up during the crisis but this would not continue forever.

"This year, next year there may be good results, but underlying profitability will go down," he said.

Gyorgy Zolnai, Chief Executive of state-owned Budapest Bank, which is due to come up for privatisation soon, said there was no return to the hefty growth levels seen before the financial crisis.

"This is not a banking crisis but sustained low profitability," he said, adding that too many banks were operating in Hungary at too high a cost, which was unsustainable.

However, Laszlo Bencsik, deputy chief executive of OTP Bank , said loan volumes would grow stronger in the coming year because overall lending as a percentage of the economy was still at 2002 levels. (Reporting by Gergely Szakacs; Editing by Ruth Pitchford)

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