“Banks have largely completed de-risking their balance sheets and further improvements in loan quality will be more limited in the next 12 to 18 months,” Moody’s said.

It expects Hungarian banks’ non-performing loan ratio to fall to around 5.5% by the end of 2019 from 6.2% in 2018 and about 15% in 2016.
The stable outlook is supported by banks’ funding and capital, and by economic growth, Moody’s said.

“Banks will continue to rely on domestic deposits as their key funding source, a credit strength, while liquidity buffers will soften but remain high,” said Moody’s analyst Melina Skouridou. “Operating conditions will remain favourable.”

Moody’s expects Hungary’s real GDP to grow 3.8% in 2019 and 3.2% in 2020, well above the eurozone average of 1.9%. The rating agency noted that deposits accounted for around 70% of total assets of the banking sector at the end of 2018 and would continue to be Hungarian banks’ main funding source.

It added that a high portion of foreign-currency deposits poses a refinancing risk.