Erste pushes private banking consolidation in Hungary

By bne IntelliNews August 10, 2012

Tim Gosling in Prague -

Shrugging off continued government pressure on the banking sector, Erste Group Bank's Hungarian unit has increased its investment in the country with the acquisition of the local private banking arm of BNP Paribas. The purchase could be driven by that very same political uncertainty, as private bankers report increasing interest from high net worth individuals to shift their assets out of the country, while Erste said it expects further consolidation of the segment.

"We continue to believe in banking in Hungary, we're committed to grow here despite the hardships," Erste Hungary CEO Radovan Jelasity said as he revealed the deal on August 9, reports Dow Jones. The purchase, to be completed in November, involves assets under management of HUF60bn (€217m) and a client list numbering around 400. The cost of the acquisition, which the bank said will help it increase its market share in Hungarian private banking from 9% to 12%, has not been disclosed.

Banks in Hungary have been fighting a concerted attack by the populist Fidesz government since it came to power in 2010. They have faced what some banks claim is the "highest banking tax in the EU," huge losses on foreign currency mortgage repayments under a government scheme, and are now struggling against a new financial transactions tax which will apply a levy to commercial banking transactions, but leave financial market operations untouched.

With foreign banks dominating ownership in the market, the likes of Erste, as well as Austrian peer Raiffeisen Bank International and others, cut back on investment in commercial banking around the turn of the year. The sector has also reduced lending in response to the government pressure, and as the Hungarian economy has slowed.

However, the "unorthodox" economic policies of Budapest are also impacting sectors across the spectrum, and reports of increasing benefits for companies close the administration have only unnerved investors further.

That, ironically enough, is creating opportunity in private banking. An Austrian wealth manager from within the UniCredit Group network told bne in June that Hungary has become a major target for the bank's CEE private banking division, with wealthy individuals looking to move their assets out of Hungary. He noted that Austrian banks on the border have seen a huge uplift in deposits in recent months.

The head of Erste's Hungarian private banking arm, Andras Kallay, hinted that the Austrian bank is now on the lookout for more acquisitions to take advantage both of demand to deposit assets with banks with international networks, and of uncertainty within the segment. "Erste continues to seek further acquisition targets," he said, "as we expect more consolidation on the market."

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