(Updates with detail, quotes)
BUDAPEST, Feb 25 (Reuters) - Hungary's central bank expects the decline in gross domestic product to accelerate until late 2009 and sees a turnaround only towards the end of the year, central bank deputy governor Julia Kiraly said on Wednesday.
Kiraly said the bank expects the decline to slow from early 2010 but expects negative annual growth for 2010 as well and sees downside risks to its growth forecasts.
The economy's decline and the forint's weakness will hamper the country's banking sector and portfolio quality will deteriorate but the sector's risks are still manageable, Kiraly added.
"Our GDP graph is going to decline until the end of 2009 before it's going to turn ... and right now, we see a downside risk to our growth forecast," Kiraly told a conference.
The central bank said earlier this week it expects Hungary's economy to contract by 3.5 percent in 2009 and 0.5 percent in 2010.
Kiraly added the sharp decline in lending to corporations is one of the bank's chief worries.
"We think that this is the chief stability problem of the economy ... it is imperative that continuous funding to corporations is maintained," Kiraly said.
"The lack of availability of credit and the recession are two factors which strengthen each other and reduce our chances of getting out (of the crisis)," Kiraly said.
Kiraly added the recession and the sharp weakening of the forint will worsen banks' lending portfolio but the deterioration is still manageable.
"We expect a deterioration of portfolio quality ... and this (trend) has already began," Kiraly told a business conference. "This is still tolerable, this is still within the normal operation of the bank sector." (Reporting by Balazs Koranyi; Editing by Chris Pizzey)