"Hungary's financial system is stable and resilient but the central bank is ready to act if the domestic market deteriorates significantly due to the financial crisis, deputy governor Julia Kiraly said last week."The Hungarian banking system is stable, it has adequate capital reserves and its shock-absorbing capacity is strong," Kiraly told a news conference presenting the bank's regular update on financial stability.
She said the domestic interbank market was operating normally and there was no unusual change in liquidity.
However, Kiraly said the central bank was monitoring market conditions and it was ready to act if they were to deteriorate.
"The National Bank of Hungary, along with its peer authorities, is aware of the situation, and is prepared to take all necessary steps to uphold confidence in the banking system and ensure the safe operation of financial markets."
Kiraly added that the bank would only intervene if it was absolutely warranted.
"Until we see signs that justify action, we are not willing to stir a panic," she said.
Hungary's forint hit a six-month low at 254 per euro on Wednesday, tracking falls in other emerging market assets. The Budapest bourse <.BUX> plunged over 7 percent to hit levels last seen in July 2005.
Central Europe's biggest independent bank, Hungary's OTP , sank over 12 percent to a four-year-low, however, Kiraly said the falls were not unique among European financial stocks and were not driven by fundamentals.
"We are certain that these stock falls have no fundamental reasons," Kiraly said, adding that the Hungarian banking system as a whole was resilient due to healthy profit growth over the past few years.
"This banking system is not in the epicentre, we do not have a shadow banking system, no toxic assets and there is no loss of confidence among local market participants," Kiraly said.
However, she added that lending would likely slow down going forward and risks of a sustained period of lower economic growth in Hungary have increased.
13.10.2008