December 23, 2011 / 11:17 AM / 8 years ago

TEXT-S&P cuts some Hungarian banks following sovereign action

(The following statement was released by the rating agency)

Dec 23 -

— On Dec. 20, 2011, we lowered our long- and short-term sovereign ratings on Hungary to ‘BB+/B’ from ‘BBB-/A-3’ and removed them from CreditWatch negative, where we placed them on Nov. 11, 2011. The outlook is negative.

— This reflects our view that the predictability of the country’s policy framework has lessened, weighing on the economy’s prospects in the next couple of years.

— Consequently, we are lowering the ratings on Hungarian OTP Bank PLC and its core subsidiary OTP Mortgage Bank to ‘BB+/B’ from ‘BBB-/A-3’ and removing them from CreditWatch negative. The outlook on both banks is negative.

— We are lowering the unsolicited public information (pi) ratings on K&H Bank to ‘BBpi’ from ‘BBB-pi’.

— We are revising the outlook on Magyar Takarekszovetkezeti Bank ZRt to negative from stable.

Standard & Poor’s Ratings Services said today that it took various negative rating actions on four Hungarian banks, following a downgrade of the Republic of Hungary (BB+/Negative/B).

— We lowered the long- and short-term counterparty credit ratings on OTP Bank PLC and its core subsidiary OTP Mortgage Bank to ‘BB+/B’ from ‘BBB-/A-3’ and removed them from CreditWatch, where we had placed them on Nov. 15, 2011. The outlooks on both banks are negative.

— We lowered the long-term unsolicited public information (pi) rating on K&H Bank to ‘BBpi’ from ‘BBB-pi’.

— We affirmed the ‘BB/B’ long- and short-term counterparty credit ratings on Magyar Takarekszovetkezeti Bank ZRt (Takarekbank) and revised the outlook to negative.

— The ratings on the other Hungarian banks that we rate, Central-European International Bank Ltd. (‘BBpi’) and MKB Bank ZRT (‘Bpi’), are unaffected by today’s rating actions.

Today’s rating actions on Hungarian banks were prompted by our Dec. 20, 2011, downgrade of Hungary (see “Ratings On Republic of Hungary Lowered To ‘BB+/B’ On Unpredictable Policy Framework; Outlook Negative,” published Dec. 21, 2010).

The downgrade of Hungary reflects our opinion that the predictability and credibility of Hungary’s policy framework continues to weaken. We believe this is due, in part, to official actions that have weakened the independence of regulatory institutions and complicated the operating environment for some investors. In our view, this is likely to have a negative impact on investment and fiscal planning, which we believe will continue to weigh on Hungary’s growth prospects. Moreover, in our opinion, risks to Hungary’s creditworthiness have increased as the global and domestic economic environments have weakened.

OTP, K&H Bank, and Takarekbank are predominantly domestic lenders, and we typically do not rate banks above the foreign-currency sovereign ratings under our criteria. This decision to cap banks’ ratings at the sovereign level reflects the banks’ exposure to the sovereign through the Hungarian bonds in their securities portfolios, the deteriorating operating environment, and the consequences of unfriendly measures the government has imposed on the Hungarian banking system since 2010.

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