Hungary banks stable but lending capacity weakened

"The Hungarian financial intermediary system continues to be stable and has strong resilience to shocks, [but] its ability to support economic growth has been weakening," the National Bank of Hungary said in its Stability Report on Thursday.

Compiled by the bank's Monetary Council, the report said strong deleveraging in the euro zone's banking sector and the weak ability of domestic banks to draw capital combined to produce faster funding withdrawals compared to the rest of the region.

The worsening quality of banks' corporate lending portfolios could dampen the banking sector's lending capacity with the risk of a credit crunch, mainly in the corporate sector, it added.

The Council said it was important to restore the domestic banking sector's profitability.

Reaching swift agreement on a backstop IMF loan was "crucial", it said. Such an agreement would cause Hungary's risk premium to fall, lowering funding costs for the state and the banking sector, it added.