Moody's affirms ratings of Hungary's MBH Bank

Moody's has affirmed MBH's ba3 Baseline Credit Assessment (BCA) and Adjusted BCA, as well as its Baa2/P-2 long- and short-term Counterparty Risk Ratings (CRRs) and Baa2(cr)/P-2(cr) long- and short-term Counterparty Risk (CR) Assessments.

Note that the rating action was carried out on 28 June, only MBH announced it today.

"The affirmation of MBH's ba3 BCA reflects the improving financial profile of the bank, in particular its combined solvency, while still considering the yet-to-be-established track record of a sustained financial performance following the legal three-bank merger last year, and new M&A execution risk related to another acquisition in the first quarter of 2024, that of Fundamenta-Lakáskassza Zrt., a domestic building society. This latest acquisition increased MBH's customer loans and funds by close to 10%," Moody's said in its ratings rationale.

Moody's said they "recognize MBH's improving profitability potential as synergy effects will surpass merger costs in 2024, further fueled by the cross-selling potential following the acquisition of Fundamenta which considerably broadens MBH's customer base and bolsters its retail franchise, enhancing diversification of the bank's business profile."

These factors, coupled by reduced regulatory costs, will serve to partially counterbalance potential revenue challenges associated with the continued monetary policy easing in Hungary.

Moody's further acknowledged the "continuous improvements in the bank's asset quality and view the bank's substantial loan loss reserves as a robust safeguard against the lifted government-induced interest rate caps which will test the performance of SME and mortgage loans in the second half of the year."

The affirmation of the BCA further takes into account the effects of the acquisition on the bank's capital, as well as the bank's strong growth ambitions and high exposure to sovereign risk, both of which temper its capitalization, Moody's added.

The BCA continues to be bolstered by MBH's largely deposit-driven funding profile and strong deposit franchise, along with substantial liquidity reserves.

Moody's also noted that the stable outlook on MBH's long-term deposit and senior unsecured debt ratings reflects its view that

the bank's credit profile and liability structure will remain broadly unchanged over the next 12-18 months.

On 22 July, Moody's assigned new Ba3/NP long- and short-term issuer ratings to MBH Mortgage Bank Co. Plc. (MBH MB), as well as Baa3/P-3 long- and short-term Counterparty Risk Ratings (CRRs). Concurrently, we have also assigned new Baa3(cr)/P-3(cr) long- and short-term Counterparty Risk (CR) Assessments to the bank. The outlook on the long-term issuer ratings is stable.

"We consider MBH MB to be a highly integrated entity of its parent MBH Bank Nyrt. with very close financial and operational links with its parent."

"However, economically, MBH holds a 52% stake in MBH MB and the latter has funded moderate volumes of businesses of the parent's smaller domestic competitors. Given that MBH owns just slightly more than half of MBH MB and another key shareholder holding a blocking minority, in our opinion the ownership structure

entails risks of legal impediments that could hinder immediate financial support to be forthcoming by MBH to its mortgage subsidiary in the case of need.

"Therefore, the ratings of MBH MB are one notch below the ratings of its majority owner, MBH. MBH's controlling stake in MBH MB empowers it to centrally manage risk and liquidity, ensuring instant liquidity support to its mortgage subsidiary when necessary."

Cover photo: Portfolio