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Hungarian banks must adapt or face extinction, central bank says

Hungarian banks will need to innovate amid pressure coming from domestic and international developments or they risk being forced out of the market, the country's central bank said in its latest financial stability report.

Challenges for banks include competition from financial technology firms and the low-yield environment, which is keeping their revenues under pressure.

Financial institutions delaying digital developments, mobile banking and branch cuts will not be able to meet the profitability expected of them, the regulator noted.

The central bank also said it had found in its solvency stress test that the Hungarian banking sector as a whole is capable of meeting regulatory capital requirements even in the event of a big macroeconomic shock.

It estimates that the risk of overvaluation of housing prices still exists in the country, but banks' investments that are sensitive to real estate market changes are low as a percentage of the regulatory capital.

Banks' profitability is high amid a favorable domestic economic environment, supported by the reversal of the provisioning done in light of the global financial crisis. Some banks will still have to carry out efficiency-improving measures to ensure their profitability is sustainable, the central bank said.