OREANDA-NEWS. Fitch Ratings has affirmed MFB Hungarian Development Bank Private Limited Company's (MFB) and Hungarian Export Import Bank's (Hexim) Long-term Issuer Default Ratings (IDR) at 'BB+' with Stable Outlook.

A full list of ratings actions is provided at the end of this commentary. Fitch does not assign a Viability Rating to these banks as their business models are entirely dependent on the support from the state.

The rating action follows a peer review of European development banks.

KEY RATING DRIVERS
Both banks' IDRs are equalised with those of the Hungarian sovereign (BB+/Stable), reflecting Fitch's view of a moderate probability of state support for either bank, if required. The agency believes that the government's propensity to support Hexim and MFB is strong. However, its ability to provide support is moderate, as reflected in the sovereign ratings.

Hexim and MFB are 100% state-owned banks, and shareholder rights are exercised by the Minister in charge of the Ministry of Foreign Affairs and Trade and the Minister of Prime Minister's Office, respectively.

Fitch's view of support for both banks reflects their strategic policy role to support Hungarian exports (Hexim) and domestic economic growth (MFB), full state ownership and state guarantees for their obligations. Fitch also takes into consideration each bank's dedicated legal acts that govern their tasks, scope of activities and relationship with the state.

In 2014 and 1Q15, Hexim continued to receive fresh capital from the state, supporting its strategic lending growth plans. Both banks received short-term bridge financing from the state in 2011 (MFB) and 2012 (Hexim).

The Eximbank Act sets out that the state will take ultimate responsibility for Hexim's on- and off-balance-sheet liabilities of up to HUF1,200bn (about EUR4bn) and HUF350bn, respectively. MFB's repayment risk is covered by a special statutory suretyship up to HUF1,800bn (about EUR6bn). Neither bank is allowed to raise debt above these limits and is required to seek approval from the relevant minister for all major borrowings. The limits for both banks are defined each year in the central government budget act. The combined limit of HUF3,350bn represents a potentially material, but manageable, contingent liability for the state, which equals about 11% of forecast 2014 GDP. Fitch does not expect either bank to fully utilise their guarantee limits over the medium-term.

Both banks plan to source their guaranteed medium- and long-term funding primarily from international markets. Under a EUR2bn global medium-term note programme (GMTN), Hexim has placed two long-term bonds in US dollar (USD500m each, maturing in 2018 and 2020) and one in euro (EUR400m, maturing in 2019). Since 2010 MFB has placed two international bonds: USD750m (maturing in 2020) and EUR500m (maturing in May 2016).

RATING SENSITIVITIES
MFB's and Hexim's ratings are sensitive to changes to the Hungarian sovereign ratings. Fitch believes that the state's strong propensity to support both banks is unlikely to change in the foreseeable future.

The rating actions are as follows:

Hexim
Long-term IDR: affirmed at 'BB+'; Outlook Stable
Short-term IDR: affirmed at 'B'
Support Rating: affirmed at '3'
Support Rating Floor: affirmed at 'BB+'
Senior unsecured debt long-term rating: affirmed at 'BB+'
Senior unsecured debt short-term rating: affirmed at 'B'

MFB
Long-term IDR: affirmed at 'BB+'; Outlook Stable
Short-term IDR: affirmed at 'B'
Support Rating: affirmed at '3'
Support Rating Floor: affirmed at 'BB+'
Senior unsecured debt long-term rating: affirmed at 'BB+'