In the National Bank of Hungary’s assessment, Hungary’s financial system and its banking system are stable. The central bank and its partner institutions, including financial market watchdog PSZAF stand, however, ready to take all measures if necessary, NBH deputy-governor Julia Kiraly said at a press conference to present an update of the bank’s April Financial Stability Report on Wednesday.
The NBH sees no need for intervention at present and will not take any step until it deems it absolutely necessary, Ms Kiraly said. “We will not stir up panic,” she said.
The bank is watching developments closely, however, and if it see signals for the need to intervene, it will take all the steps necessary to strengthen confidence in the financial system and maintain its stability, Ms Kiraly said
Hungary’s bank system is stable, it is well capitalised and its shock-absorbing capacity is strong. The interbank forint and forex market are both functioning normally with no signs of any unusual liquidity problems, she said. “Toxic” financial products are absent, Ms Kiraly said.
The assessment made by the bank in its April Financial Stability Report still holds, she said, adding that two of the risks identified by the bank six months ago — namely the risk of slowing growth and an increasing and sustained high risk premium –has intensified.
Increasing costs of financing will likely push up lending rates and make lending conditions stricter in Hungary, she said. Lending growth will most probably slow as a result. The adjustment is not, however, expected to be dramatic, as lending growth has not exceeded the equilibrium level, she noted.
With the current global liquidity problems, transaction costs and financing costs are rising, she said. Hungarian banks have relied on foreign funding to finance rapid lending growth in the past few years, and the term of their foreign liabilities has shortened and their price has risen, she said, adding that this was not only true for Hungary.
Foreign parent banks are providing the necessary liquidity to their Hungarian units, she said, noting that the foreign owners of Hungarian banks are typically banks with large deposits, less exposed to the present crisis.
Ms Kiraly termed the upheaval on the European markets a crisis of confidence, which has triggered panic and sometimes irrational reactions, noting that fundamentals are not the cause of the current fall in share prices.
The NBH is, however, ready to take all the necessary measures if the situation deteriorates, she repeated, noting that the bank detects no loss of capital or of confidence in Hungary.
The global financial crisis has contrasting effects as regards monetary policy, Ms Kiraly said in response to reporters’ questions after the press conference. The resulting economic slowdown helps disinflation, but the NBH cannot neglect the increase of the risk premium or the “confidence issue”, she said. “We must consider both, but for now we maintain a wait-and-see approach”, she said.