Banking System’s Resilience Faces Profit Decline
Hungarian banks are entering a complex and challenging period with a stable and strong capital position, according to a statement by the Hungarian Central Bank (MNB). Despite increasing credit risks, particularly in energy price-sensitive portfolios, the sector’s resilience to shocks remains adequate and its liquidity and capital position robust. However, a rising interest rate environment and war-induced uncertainty are expected to slow credit growth dynamics in both corporate and household segments. The MNB also warns that the deteriorating economic environment negatively affects the Hungarian economy and poses a risk to portfolio quality. Additionally, government measures will significantly reduce the profitability of the banking system this year and the next, which could lead to a reduction in lending capacity in the medium term. Despite these challenges, the MNB assures that banks’ liquidity buffers remain ample, with substantial reserves to meet regulatory requirements in the event of a significant liquidity shock. Financial institutions could also still have a manageable level of risk from a highly vulnerable loan portfolio. Private sector credit growth is expected to moderate as loans become more expensive and uncertain. Overall, the Hungarian banking system is strong and well-prepared for the upcoming challenges.
