(Corrects number in headline to $1.8 bln from $1.8)
BUDAPEST, Feb 24 (Reuters) - Pretax profits at Hungarian banks surged to 510.3 billion forints ($1.8 billion) in 2016 from 34.3 billion forints a year earlier as provisions plunged, the central bank said on Friday.
In 2015, local lenders, about half of which are foreign-owned, booked the huge costs of a court ruling forcing them to repay some past cost increases for retail borrowers, distorting the figures.
Based on preliminary data, the central bank said lenders reported a 5.7 percent rise in net interest income to 835.5 billion forints, despite a fall in interest rates to record lows. Operating costs declined 2.1 percent from 2015.
Major players in the sector include homegrown OTP Bank , Belgium's KBC, Austria's Erste Bank and Raiffeisen, and the local units of Italian UniCredit and Intesa SanPaolo.
After several lean years under Prime Minister Viktor Orban's right-wing populist government, which levied a big windfall tax on banks in 2010, lenders returned to profitability in 2015 and the sector improved again in 2016 when the bank tax was reduced.
Banks are also on course for a profitable 2017, the head of the industry's association said in January.
The central bank said non-performing retail loans dropped to 12.7 percent of the total by the end of 2016 from 17.6 percent a year earlier in 2015. In the corporate sector, the rate of loans more than 90 days overdue fell to 5.4 percent from 9.6 percent.
The overall stock of retail loans fell 3.2 percent in 2016 from a year earlier, while corporate loans dropped 0.2 percent.
The sector reported an average capital adequacy ratio of 20.1 percent at the end of 2016, up from 19.9 percent at the end of 2015, the central bank said. ($1 = 291.0900 forints) (Reporting by Krisztina Than; editing by David Clarke)