- Title: HUNGARY: Banking sector master plan starts to take shape
- Date: 29th January 2014
- Summary: BUDAPEST, HUNGARY (FILE, 2013) (REUTERS) PRIME MINISTER VIKTOR ORBAN SPEAKING IN PARLIAMENT (SOUNDBITE) (Hungarian) PRIME MINISTER VIKTOR ORBAN SAYING: "The banks and the big companies in monopole position must get used to the new situation." ORBAN SPEAKING (SOUNDBITE) (Hungarian) PRIME MINISTER VIKTOR ORBAN SAYING: "[unlike before] We are now the stronger one and they have to accommodate to the Hungarians and not the Hungarians to them."
- Embargoed: 13th February 2014 12:00
- Location: Hungary
- Country: Hungary
- Topics: General
- Reuters ID: LVA8SVII1BZOGGVFPU3I75BN88O9
- Story Text: Prime Minister Viktor Orban's plan to reshape Hungary's banking sector is beginning to take shape, and the signs are that it will involve some foreign lenders pulling out and greater influence for the government in the sector.
Orban does not hide his desire to curb the market share of foreign banks -- which he accuses of miring Hungarians in debt with unscrupulous lending practices -- but his government has not spelled out how this will happen.
Back-room talks earlier this month over the future of one Hungarian banking business for the first time offer clues of how that ambition might be implemented.
The talks, according to banking sector sources who spoke to Reuters, were on the possible sale of Austrian bank Raiffeisen's local unit to the Hungarian lender Szechenyi Bank.
Raiffeisen has said it is reviewing its presence in Hungary, in part because banks there have been hit by heavy taxes and other charges and are now bracing for more.
The deal with Szechenyi Bank ran aground after Raiffeisen decided against the sale of its unit, at least for now, at what the banking sources said was a knock-down price. But the talks themselves were a signal of intent.
From a commercial standpoint the deal to take over Raiffeisen's daughter looks ambitious given the differences in scale and infrastructure between the two operations.
Raiffeisen's Hungarian unit had assets of $8.5 billion euros at the end of June. It has 123 branches.
By contrast, Szechenyi Bank had 90 million euros in assets at the end of 2012. It has one branch, in the capital Budapest, with two cash desks and a front office desk to deal with customers. On a weekday morning last week when a Reuters reporter visited, there were hardly any customers in the branch.
Relative to Raiffeisen's business in Hungary, its would-be buyer is so small it is "invisible to the naked eye," said Peter Felcsuti, Raiffeisen's chief executive in Hungary for 21 years until 2011.
For it to take over the Raiffeisen's unit would, he said, not be good for the banking sector.
"On the surface it appears that a small bank would take over, or is prepared to take over Raiffeisen. However, when we look at the substance of the matter then we see that this wouldn't be possible without the huge, sizeable involvement of the Hungarian state. So I am pretty sure that that small Hungarian bank, which by the way is half-owned by the Hungarian state will get a capital infusion enough to pay for the bank or to take over the bank at whatever price," Felcsuti said.
Yet the deal would make sense from the point of view of enhancing the state's influence over the banking sector.
Orban has said the goal was to have the banking system to be at least 50 percent owned by Hungarians because that could make financing the economy easier in times of crisis, when foreign banks shore up their finances at home and cut lending abroad.
The state has a 49 percent stake in Szechenyi Bank. Via a company, it is majority owned by Istvan Torocskei, who was appointed by Orban to head the government debt agency.
Torocskei himself is linked to the prime minister's circles. He has said he is good friends with Lajos Simicska, a powerful industrialist and a high school and college friend of Orban.
Approached by Reuters in Budapest, Torocskei declined to comment directly about any talks with Raiffeisen. He told Austrian local media that "hasty leaks" to the public were part of the reason why the deal fell through. When asked if something could still come out of the discussions, he said: "God knows."
Economy Minister Mihaly Varga has said it is not the aim to have banks in state hands in the long term and the government should be mindful of taxpayers' money when investing in any bank but that opportunities for domestic businesses "were welcome".
Varga himself has said one or two foreign banks might be considering pulling out of Hungary. He did not name the banks.
There is no evidence that the government was involved in the moves to bring the Raiffeisen unit into Hungarian ownership. But if that was the outcome it would chime with what analysts say is the government's agenda for the sector.
"The real reason for trying to make the banking sector more Hungarian in terms of ownership I think is mainly to strengthen the business circles that are close to the government so it is partially about a protectionist policy, partially also about strengthening some businessmen who are close to the government. For example, the owners of Szechenyi bank, or others. And this is also part of the government's freedom fight policy, that it is trying to reduce the dependencies from western Europe," analyst of Political Capital Peter Kreko said.
This re-structuring of the banking sector, if it does happen, will be the culmination of a long campaign led by Orban to bring foreign banks into line.
"The banks and the big companies in monopole position must get used to the new situation[unlike before]. We are now the stronger one and they have to accommodate to the Hungarians and not the Hungarians to them," Orban told parliament last autumn.
The foreign banks account for seven of Hungary's eight biggest banks, with assets totalling 20 trillion forints ($90.53 billion) out of 26 trillion forintsfor the whole sector.
They include units of Austria's Erste Italy's Intesa Sanpaolo and UniCredit and Belgium's KBC.
When, in the years before the 2008 financial crisis, Hungarians scrambled for loans to buy homes and cars, the banks racked up big profits.
Since coming to power in 2010, Orban has imposed heavy taxes on the sector, and forced them to contribute to a relief scheme for borrowers struggling to make repayments on home loans denominated in foreign currency.
Those levies have left many banks in the red, and they are bracing for worse because Orban -- seeking re-election in April -- is planning a new relief scheme for borrowers.
"The major tension between the government and the banking system is generated by the FX mortgage debt issue. And this is coming up and coming up again and again. And if there is a final solution for this which can be accepted by the banking system and the government at the same time then these tensions should be reduced," analyst of Concorde Securities Attila Gyurcsik said.
The pressure on the banks from the Hungarian government, combined with the European Central Bank (ECB) asset quality review could be a trigger for some banks to leave.
While having more banks in Hungarian ownership could help more local businesses get access to credit, the exit of a large bank would send a bad message to investors, said Peter Felcsuti.
"If one or two or more banks will be sort of squeezed out from the Hungarian market it won't change the lending landscape in Hungary but it will be a huge loss when it comes to capital and overall atmosphere as far as the investment environment is concerned."
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