Central Europe's banks to weather sharp 2023 economic slowdown -Fitch

BUDAPEST (Reuters) - Central Europe's banks are expected to weather a sharp economic slowdown this year, bolstered by strong funding structures and improving profitability, Fitch Ratings Senior Director Artur Szeski told a media briefing on Wednesday.

He said Fitch did not expect a full-blown recession in any of the main economies of the region, Poland, Romania, Hungary, the Czech Republic and Bulgaria, which means the slowdown would not be 'devastating' for central Europe.

"Our thinking about these banking sectors is that there is an economic slowdown, there are pressures on banking sectors, but we do not see this as a major risk to the credit profiles of the banks," Szeski said.

"The biggest risk comes from interventions and legacy legal issues materialising but the core businesses are doing pretty well and continue to do so over 2023 and 2024."

He said Fitch generally expected bank sector profitability in the region to improve, while lenders' funding structures were 'quite strong' as they were mostly based on customer deposits.

"There is a lot of spare liquidity in these banking sectors across the board, which means that the banks are not actively pursuing pricing to maintain their deposits because they still have very comfortable funding positions," he said.

Lower credit penetration levels in both the retail and the corporate sectors compared with the euro zone would support loan growth once demand starts recovering, Szeski added.

He said banks' asset quality had held up 'significantly better' than Fitch had expected at the end of last year, with balance sheets bolstered by tighter underwriting standards and the clean-up of legacy portfolios and distressed loans.

(Reporting by Gergely Szakacs; Editing by Christina Fincher)