Tim Gosling in Prague -
Bank Austria broke ranks on July 10 with the bevy of banks operating in Hungary that predict huge hits on their balance sheets, as it forecast the growing onslaught from Budapest will not prevent it making a profit in the country this year, even while the government's stance hardens.
"We will have a positive annual result in Hungary no matter what lies ahead," CEO Willibald Cernko told reporters, according to Reuters. "We will certainly not have to inject more capital." However, the head of the UniCredit unit offered no details.
The confidence at Central and Eastern Europe's largest banking group is at odds with its Austrian peers, who have issued warnings as the Hungarian government turns the screw on lenders who provided foreign currency mortgage loans in the boom years.
Austria's Raiffeiesen Bank International, the region's second biggest lender, said the previous day it expects to take a charge of €120m-160m this year as a result of the latest legislation, which will make banks recompense borrowers for unfair unilateral interest rate changes. Erste Bank, CEE's third-biggest lender, said in early July that it is braced for a hit of €300m, and that its units in Romania and Hungary will pull it to a record 2014 loss.
Hungary's largest lender, OTP, suggested last week that the law will knock HUF25bn (€80m) from its second-quarter pre-tax profit. The National Bank of Hungary predicts the first phase of the forex loans scheme being put together could cost the Hungarian banking sector as much as HUF900bn.
Yet there could be much worse to come. The Hungarian government said earlier this week that elements of phase II of its scheme to alleviate the pressure of forex loans on borrowers are now under discussion.
The reading thus far is not pretty for the banks. Officials have said they plan to force lenders to convert all forex loans to forints by the end of the year, and possibly all at once, at an exchange rate for the forint above the market. The one glimmer for the banks is they may be allowed to offset the loss against the bank tax - the special levy implemented by the Fidesz government as it came to office in 2010, to bitter complaint from the financial sector. However, that relief is not yet confirmed.
Some suggest that Budapest will be constrained by concern over the banking sector's health. However, Prime Minister Viktor Orban has regularly stated that he wants to see local ownership boosted. A similar strategy in the energy sector has seen foreign owners selling under pressure from legislation that has hit financial performance.
Several banks, including RBI and Unicredit, suggested last last year they could leave Hungary, but in the face of low offers and huge portfolios, have since insisted they will stay.
Despite lip service from Budapest claiming it does not want to damage the sector and its willingness to lend, Fitch Ratings warned on July 9 of the likely damage stemming just from the costs of phase I. Foreign parents will be forced into large capital injections to their Hungarian units to restore regulatory capital and lending capacity, the analysts said.
The National Bank of Austria on July 7 urged the country's lenders to remain in CEE markets, but said they need to heed risks and bolster their balance sheets to compete with more strongly capitalised rivals. Austrian banks in general have relied too much on lending in foreign currencies and pushing loans at an unsustainable pace, claimed Governor Ewald Nowotny. Austrian banks' forex loans in the region still amount to more than €74bn, but they're now getting a grip on the problems, Nowotny claimed.
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