As a follow up to our pet subject Hungary ("Hungarian Dances") which we discussed in more details a couple of days ago ("Hungarian Borscht"), we argued that a credit crunch in Hungary would happen no matter what.
A recent article from Bloomberg confirmed our fears related to Erste Banks results:
As a reminder from our conversation "Modicum of relief":
"It is not a surprise to see how impaired its lending capacity is given its:
-loan-to-deposit ratio of 192%, the highest in the sector.
-the proportion of non-performing loans in the bank's portfolio rose to 20.5% in 2011 from 11.7% in 2010 (The rate in the retail portfolio increased to 16.3% from 11.4%, while the rate in the corporate portfolio climbed to 29% from 12.5%)."
We also said in this conversation:
"Rising non-performing loans is a cause for concern as well as rising loan-to-deposit ratios."
Risk costs at Erste Bank Hungary increased on additional extraordinary provisions (EUR 75.5 mios) relating to the interest subsidy scheme for performing FX loans imposed by legislation.
-NPL ratio increased to 23.5%
-NPL coverage declined as expected from 70.3% at YE 11 to 68.4% at March 2012.
Risk provisions are well increasing for the corporate segment, with NPL ratio increasing to 14.1% as of March 2012 compared to 12.8% at YE 11.
On a final note, Slovenia reveals risk in smaller Euro Nations (as Hungary does) as indicated by Bloomberg:
"Nationalism is power hunger tempered by self-deception." - George Orwell