Moody’s placed on review for downgrade the Ba2 foreign currency rating of OTP Mortgage Bank, the Ba3 rating of FHB Mortgage Bank and the ratings of five other Hungarian banks, saying that the general economic downturn and some “unorthodox” government measures could undermine the banks’ credit risk profiles.

Moody’s highlighted a deteriorating economic environment in the country and in wider Europe as factors putting pressure on the Hungarian banking system. Hungarian GDP is expected to contract by 1.4% in 2012 and to remain flat in 2013, and unemployment is forecast to exceed 11% next year, according to the rating agency.

The euro-zone crisis is likely to reduce export demand, as well as decreasing the support previously available for Hungarian banks, as they are mostly owned by western European institutions.

Moody’s also said that some measures undertaken by the Hungarian government in the past two years — such as a bank levy on assets, a temporary moratorium on residential evictions and an early repayment scheme for foreign currency mortgages — are having a negative impact on the country’s banking system.

“The Hungarian government’s unorthodox measures introduced since 2010 – combined with a weak economy and rapidly growing loan-loss charges – have recently led to significant losses for the Hungarian banks, impairing their ability to lend,” said the rating agency.

Moody’s added that the approval of a financial transaction tax on banks, which will be effective from January 2013, and the decision to maintain the bank levy next year, will continue to impair the banks’ lending capacity.

The rating agency noted a weak performance of Hungarian banks in 2012, with Huf10bn (Eu37m) systemic losses in the first nine months of the year, representing a 6.5% decrease in the banks’ strength in September 2012 year-on-year.

Retail lending declined by 14% in the first semester of 2012, also reflecting the effects of borrowers’ early repayment of their foreign currency mortgages, said the rating agency.

Moody’s also highlighted a decline in the quality of the banks’ assets. Banks’ non-performing loans reached 16.2% in the retail portfolio in 2012, with a 47% coverage ratio. The decline in asset quality is set to continue in 2013.

“The high differential in the exchange rate between the Hungarian forint and the Swiss franc at the time of loan origination continues to represent an element of pressure,” said Moody’s, adding that the start of some debtor assistance programmes may help to temper the deterioration.