Hungarian banks have an average capital adequacy ratio of about 11 percent, which is sufficient, a central bank official said on Wednesday.
If the forint were to weaken sharply and Hungary’s recession were to deepen, the banking system would need an additional 700-900 million euros to keep capital adequacy ratios stable, according to a study by the National Bank of Hungary.
The study, designed to measure stress situations, calculated with a forint-euro rate 15 percent weaker than the 290 exchange rate used by the central bank and an economic contraction of 7 percent, double the contraction currently seen by the central bank, said Marton Nagy, an NBH finance expert.
The bank support package earlier approved by parliament allows the state to inject as much as 300 billion forints into Hungary’s banks if necessary, or enough to meet the high end of the NBH projection in the stress test, Nagy said.
The forint and forex liquidity of Hungary’s banking system has improved markedly since the government and the central bank took steps reinforcing parent banks’ commitments to their units in Hungary, he said. Liquidity now has a smaller effect on banks’ decisions to lend, but this has not much affected their willingness to take risks, he added.
The capital position of Hungary’s banks is stable, but a bigger than expected drop in GDP should give some banks warning to prepare for the possibility of the need to bring in more capital, Nagy said.
The proportion of bad loans in Hungarian banks’ portfolios, at 2-3 percent last year is among the lowest in the region, Nagy said. Coverage for mortgages is 65-70 percent, high in international comparison, he added.
I’m not quite sure I understand.
The stress test uses a 15% weaker Forint (based on a 290 exchange rate), yet I have seen recent reports (that I will have to dig out) that predict a fall to around 350-360 in the September/October time frame. Thats about a 25% drop in rate. Also I we really only expecting an econmic contraction of 3.5%, reports indicate figures closer to their stress figures of 7%.
So where would this leave MNB?
By September, who knows, least of all them.
Also, when there is talk of “the banking system would need an additional 700-900 million euros to keep capital adequacy ratios stable” where is this money coming from? Europe, the IMF, the tax payer?
“…a fall to around 350-360 in the September/October time frame.” Whereas I don’t rightly know if you are talking about HUF exchange rates to USD, EUR, or RBL, in New York City you can buy app. 380 Hungarian forints for 1 US$ right now. Right on West 42nd Street, in fact.
It seems that the Hungarians and their National Bank may have their own set of fancy exchange rates set up for their beloved forint domestically, but overseas, it is definitely handled as a soft curency with not much value against the harder ones. And this is not even a black market rate, in the old days the forint was always overvalued, anyhow, and it is overvalued right now. In fact, for an American or Canadian to go to Hungary and spend no more than he/she would have to for the same things as in No. America, the rate should be at Ft. 5-600 to the $. Short of that, Hungaria is just too expensive for Westerners.
However, I would be rather wary of any professional prognosis maker to predict w. any degree of confidence what the specific exchange rate of any currency will be in six months’ time. Nobody really knows that for a fact, you see?
I agree with JD, the parameters are out of whack – and the fact that they said them “now” and didn’t first go back and rerun the numbers isn’t a positive sign. They should be working the numbers based upon the worst case scenarios – that’s why they do these things.
Next if all they need is less than 1B EUR, then just do it. They’ve got the IMF money now – and then the report would say, ‘With 1B EUR the HU banking system is safe.’ But they didn’t yet another red flag.
350 HUF / EUR seems high, but 250 to 300 happened pretty quick and looking around the shops over the past 2 weeks hasn’t looked none-to-pretty. Few people are shopping – and besides call centres, exporting food, some car assembly plants and real estate, there’s little else to drive the economy. I guess HU is banking on more items breaking down and a surge in Call Centre traffic; the real estate is only attractive if the currency is stable, food is only attractive when other countries don’t feel there’s an embargo against their own food, and car assembly plants … well go talk to Audi and ask them when they’re planning to turn the lights on again.
@Fantron. Hey get me some of that action; we could be millionaires pretty damn fast bud!
I go into NYC once a week, usually on Wednesday or Thursday. If you want to buy HUF at the exchange booth on 42nd this week, they sell you 380 forints for 1US$, provided you exchange $1,000 or more. If it is less than a thou, the rate is slighly lower.
But if you want to SELL them your forints, better look out. You would need to give ‘em 442 of that for one buck, so I guess they are working with an app. 60 forint spread between the buy and sell rates, and that’s not too bad.
The forint would perhaps be considered ‘cheap’ if $1 would get about 550-600 of it, so I think even at 380 to the buck, it is way too pricey, considering the retail prices in the Old Country.
Now, in Ole’ Europe they are peddling this and that at the perennially inflated Euroland exchange rates, but try exchanging your HUF in Latin America or Australia or Asia, see what you will be getting for it. Who needs it, after all?
JD. Everything you say is correct. The MNB I’m afraid to say hasn’t got a fucking clue. There was bona-fide information set out a few weeks ago stating that the boss of the MNB was pumping IMF/EU money into supporting the forint on the money markets.
The forint is a “manipulated” currency. I have checked everyday over the past year.
Orban Victor is already talking about further help from the IMF if, and when, Fidesz get elected.
The depth and the breadth of the mess never ceases to amaze me. (And others, I bet?)
PS The business about the loans taken out in foreign currencies i.e the Swiss franc etc is yet to unfold. Just wait….!!!
@Fantron: No disrespect, but I find your claim about the HUF price in NYC to be incredible.
Basically, there would be enough ready demand in a place like NYC – from diplomats, returning tourists, etc – that any discount this huge (Ft 380 is roughly 50% over the normal rate) would immedately draw people out of the woodwork.
But I’m always happy to be proven wrong, so next time you are in the neighborhood, get a phone number / URL for the place. I will go there on my next visit and buy $10,000 worth and take you out for drinks for your “commission.”
@Erik/Fantron. Ditto for me. Either your money changer is dealing in funny-money; is challenged numerically or is completely on the level – in which case, one of my mates is returning to HU from NY next weekend – so can I get the address too please … I wouldn’t mind cutting my costs by 50% for a few months.
Erik and Rolrox, I don’t particularly give a hoot what the price of the magyar forint is in Budapest, New York, or Ulan Bator, but I do believe that like all commodities, prices (i.e. rates of intra-currency exchange rates) of currencies can be vastly different depending on location, time, market conditions, etc.
Most people who need HUF do not buy it in New York or Melbourne, I suppose, so there is probably a smaller demand for it overseas than there would be on Vaci utca, I figure. Also, once the overseas exchange booths buy HUF from the tourists, what else can they do with it, send it back to Hungary — or try to sell it locally to someone who may need it?
I don’t know if you guys know whow a small foreign currency exchange booth looks like, but it is not a bank with a lobby, phone and fax number, etc. Plus, you probably have to be there in person to do the deal.
Lastly, if you are familiar with Google Maps, just do it. Type in “260 West 42 Street, New York, NY” for the address, but make sure you are looking at the south side of the street. Then go to Street View, you will see the place with a huge blue sign on top stating “CURRENCY EXCHANGE.” Got it? I suppose anyone half-way familiar with NYC should be able to find it. It is on the south side of the street, two doors east of the giant AMC movie complex, and less than half a block from the Port Authority Bus Terminal. Sorry, but I don’t have the phone number or fax number for the place. Good luck with the deal!
Ok Guys. You want to get rich quick in NYC – me too!
What I can say is, the current standing of the forint is down to loans and subsidies and reserves.
When these “run out” – so will the forint!
Orban Victor has already holding the “cap” out again for money from the IMF even before we go to the polls- where he thinks his party will be elected.
I can also tell you that its not just Hungary that is in trouble in the “locale”.
The sharks are all coming to the same stretch of water to feed. But, unfortunately, there is nothing left.