Hungary hits banks with new fines

By bne IntelliNews March 14, 2014

Tim Gosling in Prague -

The Hungarian central bank fined 35 banks a total of HUF1.2bn (€3.8m) on March 13, in the latest hit on the sector. Meanwhile, Budapest has stepped up its efforts to build a major new lender to fill the credit void in the country.

The Magyar Nemzeti Bank levied the penalties against the banks for unilaterally changing financial services conditions, leading to increased costs for customers. The largest fines of HUF98m each went to the country's biggest bank OTP, Austria's Erste Bank and Raiffeisen Bank International, and MKB, which is owned by Bayerische Landesbank.

The central bank said the banks had violated consumer rights by changing fees, charges and service conditions without providing reasons for doing so. The banks shouldn't have changed the calculation methods for the charges set out in existing contracts and shouldn't have introduced new charges to existing contracts, it said, according to the Wall Street Journal.

At a news conference, MNB Vice Governor Laszlo Windisch added that the banks must also reimburse customers. Several hundred thousand consumers could be affected and the total reimbursements could be in the region of HUF10bn.

In November, 11 banks were handed fines totalling HUF9.5bn by Hungarian competition authority GVH, which said they had colluded to curb a government scheme in 2011 on the early repayment of foreign currency loans that forced them to shoulder huge losses. OTP and Erste were handed the largest penalties.

Budapest is currently pushing to implement a new programme on the huge volume of foreign currency debt in the country, and non-performing loans (NPLs) have been accelerating ahead of the plan, which is currently delayed by legal questions - primarily whether the banks had the right to unilaterally change contracts.

Filling the void

The punishment is just the latest to hit the country's major banks, which are mostly foreign owned. It comes just days after Budapest announced a deal aimed at leveraging Takarekbank's control of the huge savings bank network into the leading financial service provider in Hungary.

Prime Minister Viktor Orban has previously demanded that the banking sector should be mostly in Hungarian hands. The harsh treatment handed out since he came to office in 2010 - large new taxes, fines, and pressure to take on losses on forex loans - was seen as a means to push foreign owners to sell at bargain prices.

However, while several lenders were reported to be mulling an exit late last year, no deals materialized, and the likes of Raiffeisen and UniCredit have since reiterated that they intend to remain. That has seen Budapest boosting a plan first put forward in 2011 to build its own lender.

With the foreign banks having practically halted lending as they negotiate the risks inherent in government policy and legal pressure, it has been left to the central bank to plug the gap with its "Lending for Growth" scheme. However, the MNB will clearly need help, and the building up of Takarekbank has long been mooted as a replacement for the current crop of commercial banks.

State-owned MFB and Magyar Posta announced on March 10 they have agreed to sell 54.8% in Takarekbank, an umbrella for the country's savings banks, for HUF9bn to privately owned Magyar Takarek.

The deal sees Takarekbank essentially nationalized and re-privatised within the space of just nine months. During the nationalization, the government last year injected over HUF130bn into the savings bank network, which boasts by far the biggest branch network in the country, but no more than 5% of the market. Magyar Takarek said it aims to make Takarekbank the leading financial service provider in Hungary, according to MTI news agency.

The main questions are raised by the 25% stake that commercial bank FHB - whose former executives ran the process from the state side - bought in the buyer three days before the close of the bid process. The conditions on the tender saw it attract just one bid, while the government classified it as a strategic deal, preventing regulators from investigating, according to the Budapest Beacon.

FHB will indirectly own 13.75% of Takarekbank after the transaction through Magyar Takarek, it said in a statement. MFB and Magyar Posta said in a statement that the government will retain regulatory powers over the sector as MFB will keep its stake in SZHISZ, the vehicle set up to oversee the savings bank sector.

SZHISZ, which like MFB and Magyar Post saw a former FHB executive appointed to head it in 2013, will keep the HUF136bn the government injected last year, it added.

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