Banking Sector Is "Strong And Resilient"

 The rate setter is thus more upbeat about the possible influences of the crisis on Hungary, saying that while financing is becoming more expensive, there is no confidence crisis in the banking sector which is soothing.

“Europe still seems to be more protected at present: the overall contamination of its markets appear to be smaller, the European Central Bank (ECB) has successfully fended off interbank market disturbances time and via swift and effective measures individual European states more or less managed to isolate the problems of some of their troubled financial institutions," Király told local daily Népszabadság on Monday. 

The economist pointed out that the NBH had foreseen the current events already a year ago: “[...] we had said then that it (the crisis) would have no direct impact on our wind free market, but the sidewinds will reach us. We had said the local financial system would not be directly influenced, but this market is part of the world's financial markets. Therefore if major changes take place there, we will feel their impact, primarily via the disappearance of cheap funds financing our economic growth," Király added.

At the same time the rate setter underlined that “the local banking system proved to be strong and resilient and the storm broke into the local financial markets only to a limited extent. What we have felt and what we need to live with is that risk taking became more expensive."

Caution, however, is warranted. Chiming together with the remarks of NBH Governor András Simor, Király also hinted that the world regards the Hungarian economy a risky place.

“Due to (Hungary's) economic performance in the past years and its debt accumulation, investors still consider the economy as fragile. Therefore, our financing costs grew more, our exchange rate fluctuated more heavily and the turbulence on our fixed income market was larger than in countries with similar grade of development. But there is no confidence crisis in the banking sector and banking market - and this is reassuring," Király stressed.

“This banking system is presently strong and resilient to shocks."

Király was also confident that economic policy would be able to handle newer and newer shocks induced by the “side wind of the tornado".

“We know the nature and impact mechanism of this phenomenon and we know where and when to intervene efficiently. The past year was a year of learning and preparation for all the major central banks and authorities. Maybe it is here at the fourth major peak of the past year's turbulent times when we feel that something has changed: our currency is less volatile, our risk premia rises less vehemently; perhaps we are not among the most vulnerable anymore. We still do not expect a strong direct impact." 

Source: Portfolio Online Financial Journal