* Demand for franc liquidity has declined -SNB
* Conditions in Swiss franc market have improved
* Another step out of crisis for Hungary -analyst
(Adds detail, analyst comment)
BUDAPEST/FRANKFURT, Jan 18 (Reuters) - The Swiss National Bank will suspend foreign exchange swaps with Hungary and Poland next week, it said on Monday, citing improved funding conditions for east Europe's crisis-hit banking sector. "Demand for liquidity provided by this type of operation has declined, and conditions in the Swiss franc funding market have improved," it said in a statement.
The SNB said the last swap operation, providing Swiss francs against euros for the Hungarian and Polish central banks, would be conducted on Jan. 25. The SNB will also suspend this swap operation with the European Central Bank.
"Banks domiciled in Switzerland and abroad continue to have access to Swiss franc liquidity via the Swiss franc repo system and the interbank market," it said.
The Swiss National Bank and the Hungarian central bank launched a euro-Swiss franc swap agreement in January 2009 to provide Swiss franc funding to banks which faced difficulties in getting access to franc funding when liquidity dried up.
The move had aimed to replenish the supply of Swiss francs, popular in Hungary for mortgages due to low Swiss interest rates, to the banking sector, which was suffering a shortage of the currency.
Hungarian households are heavily indebted in Swiss franc mortgages, and businesses also have a considerable stock of FX loans, which means banks in Hungary need a continuous access to Swiss francs to cover their exposure.
One analyst said the decision signalled another step out of a deep financial crisis for Hungary, which became the first European Union member to seek international aid when its markets went into a tailspin in Oct. 2008.
"Conditions in the financial markets by and large normalised already by the summer of last year," said analyst Zoltan Torok at Raiffeisen. "This is another element fitting into the bigger picture that the crisis is easing."
"This is not the first and will obviously not be the last."
The SNB had a swap agreement in place with Poland's central bank since November 2008 as banks in Poland faced similar problems as those in Hungary. (Reporting by Gergely Szakacs and Krisztina Than; Editing by Ruth Pitchford)