Hungary’s banking sector reports enormous Q2 losses

August 24, 2014

Debt

Hungary’s banking sector reported enormous losses totaling HUF 361 billion (USD 1.57 billion) in Q2 2014 according to data released by the Hungarian National Bank (MNB) on Friday.  This was mainly due to massive provisions against losses to cover the costs of refunding clients for past charges resulting from the currency spread and higher interest rates approved without the client’s consent.

According to MNB the aggregate value of such provisions was approximately HUF 350 billion (USD 1.52 billion).

Not since the government’s FX loan payoff scheme (Q1 2012) have banks reported such large losses.

Portfolio.hu writes that losses related to the debt relief scheme could increase further, as

  • Not all of the banks have written off the costs arising from refunding interest rate rises, in addition to those resulting from currency spread refunds.
  • Not all banks have yet applied the NBH’s stringent formula for calculating the amount due to be repaid to clients.
  • The potential costs associated with the conversion of foreign currency debt into forint loans are not yet included in the Q2 loss statement.

Savings cooperatives were the only profitable segment within the banking sector due to their low exposure to FX loans, reports the on-line financial publication.

A press release issued by MNB highlights the following points:

  • The number of profitable banks was 132, which posted a combined profit of HUF 36.8 billion (USD 160 million) in Q2 2014. As many as 37 banks suffered losses totaling HUF 315.6 billion (USD 1.37 billion).
  • Total assets declined 2.8% year-on-year in Q2 2014, or 2.3% in the first six months. They stood at HUF 30,443.4 billion (USD 132.35 billion) at the end of June.
  • More than 90 days overdue debt accounted for 14.1% of the entire loan portfolio at the end of Q2, down from 14.5% at the end of March.
  • Losses have eroded capital adequacy indicators. The average capital adequacy index declined from 19.5% at the end of Q1 to 17.4% at the end of Q2.
  • Asset value losses and risk cost provisioning grew 260.8% to HUF 447.5 billion (USD 1.95 billion).
  • The reason for this is that the majority of banks have already created provisions for losses expected to arise from a Kúria (Supreme Court) decision earlier this year that deemed exchange rate spread charges illegitimate and required banks to refund such charges. Some of the banks have also created provisions for losses expected to arise from refunds of past interest rate rises charged without the client’s approval. The total value of such provisions is approximately HUF 350 billion (USD 1.52 billion). Banks had an aggregate HUF 300.7 billion (USD 1.31 billion) loss on the “other non-interest profit/loss” line, up 21.6% year-on-year.
  • Profitability in the banking sector deteriorated in Q2 2014, with a decline in return on assets (ROA) from 0.3% at the end of Q1 into the negative range, -0.7% at the end of Q2. Meanwhile, return on equity (ROE) plunged from 3.4% also into the negative, -7.3%.