Hungary's debt has been downgraded to "junk" by Standard and Poor’s.
In spite of having its own currency, Hungary is facing a crisis that is similar to that faced by countries in the Eurozone.
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Eastern European homeowners had taken on Swiss franc mortgages before the financial crisis because interest rates in Switzerland were low and the currency was considered stable.
By the time the financial crisis began, two-thirds of mortgage loans in Hungary were denominated in Swiss francs.
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Former Eastern Bloc Getting Rocked By Surging Swiss Franc
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Roughly 40% of commercial general government local-currency debt is held by nonresidents. The financial crisis in late 2008 revealed the rapidity with which local currency bonds held by nonresidents can be sold if investor confidence falters, resulting in increased pressure on the balance of payments. In our view, this makes Hungary unusually vulnerable to sudden shifts of capital flows.
Furthermore, an estimated 50% of total general government debt is denominated in foreign currency, which we think makes the debt burden highly sensitive to exchange rate fluctuations. Another potential area of risk is the large share of foreign-currency-denominated loans to the resident private sector, largely to unhedged Hungarian households. The high level of foreign-currency-linked liabilities constrains Hungary's monetary flexibility, in our view.
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S&P Joins Moody's In Downgrading Hungary To Junk, Outlook Negative - Full Note | ZeroHedge
Also, most of the banking capital in the country is owned by foreigners.
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Foreign-owned banks, which represent more than 80% of the total capital in the banking system, face an increasing likelihood that their parent banks will limit operations in Hungary, which could affect the banks' capital positions and profitability as well as suppress lending growth, the firm said.
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Moody's Downgrades 5 Hungarian Banks On Deteriorating Assets - WSJ.com