May 21, 2020 / 9:13 AM / 7 days ago

UPDATE 1-Hungary's banks can withstand severe stress, central bank says

(Adds detail, more comments)

BUDAPEST, May 21 (Reuters) - Most banks in Hungary are adequately capitalised to withstand even severe economic stress, the central bank said in its financial stability report on Thursday, but it added that bank profits would fall substantially this year.

The National Bank of Hungary (NBH) said banks had built substantial liquidity buffers and their capital position was robust after years of profitable activity amid improved economic conditions and tighter regulation.

The ratio of non-performing loans in both the corporate and retail segment fell to levels last seen before the 2008 global financial crisis, the NBH said.

The bank’s scenario for a severe downturn projects a more than 7% recession this year and further contraction in 2021. The banking system would need additional capital worth 106 billion forints in that case, which it said was “manageable”.

“Supported by state measures and central bank initiatives, banks in Hungary have overcome the legacy of the previous crisis and are prepared to fend off the effects of a shock like the one we see today,” the NBH said in the report.

Major banks in Hungary include domestic OTP Bank, central Europe’s largest independent lender; Austria’s Erste Group Bank and Raiffeisen, Belgium’s KBC , as well as Italian groups UniCredit and Intesa SanPaolo.

The central bank said it expected a significant decline in loan supply and demand in the coming months because of the economic uncertainty triggered by the coronavirus pandemic.

However, it does not expect a repeat of a sustained decline in loan issuance seen between 2008 and 2014, the NBH said, adding that corporate lending could grow by 6-10%, while retail lending could expand by 5-8% this year. (Reporting by Gergely Szakacs; editing by Larry King)

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