Ability of the Hungarian Banking System to Tolerate a Crisis

Abstract

The banking system in Hungary made considerable progress in the early 2000s towards catching up with the well-developed banking systems in Europe. The significance of financial negotiating increased, including an outstanding increase in activity. It was the banking system that created the necessary funds for the increasing credit portfolio partly through a re-arrangement of the portfolio, and partly through involving new funds. The capital adequacy index is good, and the arising risks of currency credits are covered by the banks by means of borrowing currency credits and forward exchange transactions. The profits of the banking system showed a sharp increase due to an increase in activity. Another source of profitability has been an improving efficiency in operation.

The banking system has taken on significant risks in order to finance the increasing activity, which became intensified due to the financial crisis. The banking system was able to obtain funds to cover its credits only from abroad, and concerning certain currencies, it was able to provide the necessary funds only by means of swap transactions. The dependence on foreign sources is highly substantial. Own capital available for market risks is very low. An increase in credit risks cannot be seen from the accounting policy of loss of value of the banks.