The sub-prime crisis and its impact on the Hungarian banking sector

The last few years were characterised by high risk appetite and global spreading of a substantial amount of under-priced risks as a consequence of bank’ securitisation activities. The turbulence triggered by the US mortgage market led to the re-pricing of risks, which in turn has resulted in significant losses for the financial sector, and temporary impairment of certain market segments. In addition to the direct losses suffered by US and European banks, these institutions also had to face increasing cost of funds and shrinking funding. Even though the Hungarian banking sector had no direct exposure to the products involved in the US mortgage market, the global growth of risk premiums has caused increasing funding costs and shortening maturities of foreign funds. As an another negative development, there were disturbances in the Hungarian financial markets, in particular in the domestic government bond market, and increases in the expected yield on Hungarian assets.