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Hungary - "The Banking Sector in Central Europe - Performance Overview"

The analysis of the banking sectors in Hungary

  • The previous four years paint a bleak picture, with net profit declining with each consecutive year and swinging back into loss in 2011, when the net loss amounted to just EUR -0.3B. Consequently, profitability ratios are in the red – the ROA and ROE of the banking sector in 2011 amounted to -0.21% and -2.5% respectively.
  • The asset quality of Hungary’s banks showed severe deterioration between 2009 and 2011. The ratio of loans overdue by 90 days+ increased to 14.9% in 2011, showing a sharp rise on the 7.7% recorded just two years earlier.
  • Regulatory changes were the chief cause of the tectonic shifts that have taken place in the Hungarian banking sector. Banking levy was introduced in 2010 and is based on the adjusted assets of a financial institution. Further steps taken by the lawmakers have also had painful consequences for the sector,  the Hungarian government introduced the possibility of early repayment for FX-denominated mortgages at stipulated favourable FX rates. On top of such regulatory burdens comes the transaction tax, coming into effect from 2013., the tax will be imposed on cash transactions.   Recent years have confirmed the stress caused when assets go sour, which have clearly undercut profitability. Over last four years, net profits declined at a CAGR of 25%.Asset quality deteriorated massively from 2009 to 2011, with the ratio of overdue loans over 90 days increasing to 19.7% from the 11.5% recorded just two years earlier.Weak productivity is highlighted by metrics such as assets or net revenues per employee, which respectively stand at EUR 1.1M and EUR 59.0K; this is to some extent offset by clearly lower per capita personnel costs, which average EUR 11.0K.

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