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Fitch Affirms MFB, Hungarian Export Import Bank at 'BBB-'/Stable
February 21, 2017 / 3:06 PM / 9 months ago

Fitch Affirms MFB, Hungarian Export Import Bank at 'BBB-'/Stable

(The following statement was released by the rating agency) MOSCOW/WARSAW, February 21 (Fitch) Fitch Ratings has affirmed MFB Hungarian Development Bank Plc's (MFB) and Hungarian Export Import Bank's (Hexim) Long-Term Issuer Default Ratings (IDR) at 'BBB-', each with a Stable Outlook. A full list of ratings actions is provided at the end of this commentary. KEY RATING DRIVERS Both banks' IDRs, Support Rating Floors and senior unsecured debt ratings are equalised with those of the Hungarian sovereign (BBB-/Stable). The ratings affirmations reflect Fitch's view of the authorities' high propensity to provide extraordinary support to both banks, if required. The banks' strategic policy roles to fund domestic economic growth (MFB) and promote Hungarian exports (Hexim) remain of high importance in assessing the likelihood of government support. The direct irrevocable statutory guarantees relating to both banks' funding activities and other forms of financial support available to both banks from the state are also key to the ratings. Fitch's view of support also takes into account the full state ownership of both banks as well as dedicated legal acts (separate for each bank) that define their mandates, operating rules and relationship with the state. The Stable Outlook mirrors that on the Hungarian sovereign rating. Both banks rely on wholesale funding, raised in the domestic and international capital and money markets in the form of bonds, loans and interbank deposits. The limits of the funding guarantees for both banks are set annually by the Act on the Central Budget of Hungary. Neither bank is allowed to raise debt above these limits, while MFB is also required to obtain acknowledgment from the relevant minister for any foreign-currency borrowings with tenors of over one year. In 2017 the funding guarantee limits are unchanged from 2016 at HUF1,900 billion (around EUR6 billion) for MFB and HUF1,200 billion (around EUR4 billion) for Hexim, both covering also replacement costs of foreign exchange and interest rate swap transactions. At end-2016, the utilisation rates were 48% for MFB and about 75% for Hexim (including EUR0.65 billion unused within Hexim's EUR2 billion MTN programme). These figures may increase from the current levels given both banks' growth targets but the limits are unlikely to be fully utilised in 2017-2018. Apart from the funding guarantees, other forms of state support include back-to-back statutory guarantees on select credit exposures (total limit of HUF800 billion (MFB) and HUF350 billion (Hexim)) as per the budget act for 2017, which were only moderately utilised at end-2016. Further support is available in interest rate subsidies (MFB), an interest compensation mechanism (Hexim), FX-risk hedging (MFB), ordinary capital injections and liquidity support. The combined approved limit of the funding and back-to-back guarantees is HUF4,250 billion, equal to about 11% of forecast Hungary's 2017 GDP; this represents a potentially significant contingent liability for the state, although any payouts should be considerably less given the generally reasonable performance of the banks' assets. Hexim has continued to receive equity injections from the state to support its capital adequacy amid credit growth (2016: about HUF45 billion, equal to about 5.6% of the bank's end-2015 risk-weighted assets). At end-2015, the bank reported a total capital adequacy ratio (CAR) of 11.2%. MFB maintained a solid capital buffer during 2016 (end-2015 total CAR of 25.3%), which is available to support planned further expansion. Asset quality trends were stable in 2016 and existing non-performing exposures were reasonably provisioned/collateralised at both banks at end-3Q16, thus limiting near-term performance pressures. Both banks have comfortable liquidity cushions, manageable refinancing schedules and established access to capital and money markets. Liquidity support from the state could also be made available, if needed. As specialised credit institutions, both banks are exempt from the Bank Recovery and Resolution Directive, suggesting no impediments to the state support flowing through to the banks' creditors, and from the Capital Requirements Directive (CRD IV). Both banks are supervised by the National Bank of Hungary and are subject to compliance, although with certain exemptions, with the prudential requirements for solvency, risk management, liquidity and disclosure rules. Fitch does not assign Viability Ratings to these banks as their business models are entirely dependent on the support from the state. RATING SENSITIVITIES Both banks' ratings are sensitive to changes in the Hungarian sovereign ratings and are likely to move in tandem with the latter. The banks' ratings are also sensitive to the state's willingness to support them, which Fitch believes is unlikely to change in the foreseeable future. The rating actions are as follows: MFB Long-Term IDR: affirmed at 'BBB-'; Outlook Stable Short-Term IDR: affirmed at 'F3' Support Rating: affirmed at '2' Support Rating Floor: affirmed at 'BBB-' Senior unsecured debt long-term rating: affirmed at 'BBB-' Hexim Long-Term IDR: affirmed at 'BBB-'; Outlook Stable Short-Term IDR: affirmed at 'F3' Support Rating: affirmed at '2' Support Rating Floor: affirmed at 'BBB-' Senior unsecured debt long-term rating: affirmed at 'BBB-' Senior unsecured debt short-term rating: affirmed at 'F3' Contact: Primary Analyst Olga Ignatieva Senior Director +7 495 956 69 06 Fitch Ratings Moscow Valovaya Str, 26, Moscow Secondary Analyst Agata Gryglewicz Associate Director +48 22 330 69 70 Committee Chairperson James Watson Managing Director +7 495 956 6657 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: Additional information is available on Applicable Criteria Global Bank Rating Criteria (pub. 25 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1019300 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. 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