The foreign banks that dominate the Hungarian market have been hammered into losses over the past three years by rough handling from the government and rising bad loans. But while they're clearly furious, they've all rejected any suggestion that they could quit the country - until now.
The CEO of Italy's biggest bank, Intesa Sanpaolo, was the first to break rank on March 12, suggesting the lender could cut its presence in Hungary, which he said had turned into a "nightmare" for the financial services sector. That should fit in nicely with the prime minister's wishes, announced the same day, to see at least 50% of the banks in Hungarian hands.
"Hungary as you know used to be very good for financial services, it has now turned into a sort of nightmare," Enrico Cucchiani told analysts in a conference call on results, according to Reuters. Intesa's Hungarian unit lost €279m in the fourth quarter, the bank said earlier in a presentation, mostly due to higher loan loss provisions.
"We made a very significant acknowledgment of the situation in the fourth quarter, it continues to be a challenging environment, we have plans in place to restructure operations rather aggressively," Cucchiani said. "We sent a team there and could reduce our presence."
The Hungarian banking sector fell to its first overall loss in 13 years in 2011 on the back of rising non-performing loans (NPLs), as well as a crisis tax introduced by Prime Minister Viktor Orban's government after it came to power in 2010, and a one-off scheme that forced them to shoulder huge losses on foreign currency mortgages. A new financial transaction tax and refusal to drop the crisis tax on the sector has raised further ire amongst Budapest's banking circles, but the major Eurozone groups that control much of the market have insisted that they are in Hungary to stay.
While that determination is also very likely driven by the fact that they'd struggle to claw back even a small percentage of their investment if they tried to sell their Hungarian assets, it also depends on a longer term view that the government and its unorthodox policies can't last forever.
Therefore, the response has been to pull their heads in. Lending has been slashed, and some limited cost cutting implemented in a bid to see out the storm. However, the government is now pushing the envelope on its unorthodox policy initiatives, and provoking serious risk of a market meltdown say some analysts.
The government has recently launched new talks with the banks on expanding lending in return for breaks from the taxes that are being levied on them, but it seems some are now wondering if discretion may be the better side of valour - especially with forex debt seen as perhaps the one major restraining element for Orban.
Meanwhile, the same day that Cucchiani aired his doubts, the PM called for Hungary to nationalize "at least 50%" of the banking sector. "It's an unhealthy situation that foreigners have such a high degree of ownership in Hungary's banking system," Orban told a conference. "While respecting international treaties and relevant economic norms, we must strive to increase the Hungarian ownership ratio within the Hungarian banking system. The government has a target number - we would like at least 50% of the Hungarian banking system to be in Hungarian hands."
Little wonder then that the Intesa Sanpaolo CEO refused to shrink from his assessment when asked about it later in the conference call. "I am happy with the language I am using about Hungary and I stick to that," he said. "Everyone is pretty concerned about Hungary."
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