As the banking sector is losing competitiveness in Central and Eastern Europe, parent banks may choose to direct capital to other subsidiaries in the region, according to the report.

The banking sector incurred a Ft 94 billion loss in the first nine months, as 17 banks posted losses, according to the MNB. Hungarian banks lost a combined Ft 20 billion in 2009.

Banks’ profitability is falling rapidly, as the return on equity is expected to decline to 2.5% this year from 13% in 2009. The return on assets is seen falling to 0.2% from 1% as the new bank tax comes into effect.

The loan portfolio of banks also worsened in the first nine months, the MNB said. Non-performing corporate loans reached 12.6% of the total and household loans 10.5% by September.

The government's new flat income tax could help debtors next year and could improve banks’ loan portfolios, said senior MNB official Marton Nagy. "

Source: Hungary Around the Clock

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