Recently published research from Business Monitor International, "Hungary Commercial Banking Report Q3 2012", is now available at Fast Market Research

Boston, MA -- (SBWire) -- 07/20/2012 --BMI View: Weakening economic activity, deteriorating credit quality, external deleveraging effects and concerns over government policy will together weigh heavily on the performance of Hungarian banks in 2012, and in turn their capacity to support the country's broader economic recovery. While an IMF deal is expected to be reached by the government within the next couple of months, which should help to underpin broader stability, this will not wholly mitigate the headwinds facing the Hungarian commercial banking sector. Banks' ability to generate profits is already severely constrained, and we believe the need will arise for additional capital raisings further down the line. Hungary's banking sector faces an extremely challenging 2012. While we hold to our view that the government will obtain a new IMF Stand-By Arrangement deal within the next few months, which should help to bolster broader economic and financial stability, banks face myriad economic and policy risks which will not disappear overnight. Recent data released by the Magyar Nemzeti Bank (MNB) highlight the ongoing weaknesses in the domestic banking sector (see chart below), and in light of a deteriorating macroeconomic backdrop, we have been prompted to downgrade our forecast for loan growth in 2012 to just 2.0% from 5.0% previously. Similarly, asset growth will come in at just 1.0%, down from 4.0% previously. Below we highlight the major headwinds facing the industry over a medium-term time horizon. Faltering Economy: Hungary's economy is set to contract by 1.5% this year owing to a combination of tighter government policy, faltering eurozone economic activity and deleveraging by foreign parent banks (see below). While a new IMF deal should help to stabilise financial markets, it is unlikely to stimulate business or consumer confidence for the foreseeable future (particularly given the private sector's stillsizeable stock of external debt). In turn, this will weigh on overall demand for new credit, while rising bankruptcies and unemployment as well as higher interest rates will see to it that banks' asset quality continues to weaken. Deteriorating Credit Quality: According to the most recent data released by the MNB, banks' asset quality deteriorated at an alarming rate in the first two quarters of 2011 (most recent data available). Indeed, non-performing loans within the corporate sector (as a percentage of total loans) hit 16.0% in the second quarter of 2011, up from 13.6% in Q111 and 12.5% in Q410. Similarly, non-performing loans within the household sector rose to 12.8% as of Q311, up from just 9.4% in Q310 (see chart below). This will demand greater loan-loss provisions by banks, which in turn will erase any potential for profit in the domestic market. While banking capital as a percentage of total liabilities remains above the 8.0% level, we see strong scope for banks needing to raise new capital further down the line. External Deleveraging: We

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