The first foreign bank has pulled out of the Hungarian "nightmare". Italy's Banco Popolare has agreed to sell its small subsidiary to Hungary's MagNet Bank for just €500,000.
Dominated by Eurozone groups, Hungary's banking sector has been hit hard since Prime Minister Viktor Orban's Fidesz government came to power in 2010. High windfall taxes, one-off schemes to reduce foreign-curreny debt in the country and a new financial transaction tax drove the sector to its first loss in 13 years in 2011, and that continued last year.
Banco Popolare Hungary, which was founded through the acquisition of IC Bank during an expansion push by the Italian lender in 2007, is the first foreign bank to pull out of Hungary since the PM recently appeared to call for denationalization of the country's lenders. In a statement, Banco Popolare said the sale would not have a significant impact on its financial statement, reports Reuters.
Although they've pulled back heavily on investment and lending, the foreign banks have insisted throughout the past three years that they remain committed to the Hungarian market. However, that determination has started to creak under increasing pressure in recent weeks. Last month, just after driving constitutional changes past EU and US objections, Orban called foreign banks' dominance of the country's sector excessive.
With Budapest happy to dismiss the concerns of Brussels and Washington, the outstanding level of forex debt amongst the population is now the major brake left on its policymaking due to the risk of sinking the forint. That has the banks worried that they are once again in line to take on big losses on the loans, as was forced upon them in late 2011.
The CEO of Italy's largest retail bank, Intesa Sanpaolo, said last month that it may cut its investment in Hungary after losses in the country pushed the group into the red in the last quarter. "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 in early March.
The Italian bank was quickly followed by German utility RWE, which became the second major foreign investor to suggest in as many weeks that unhappiness is turning to fear as Fidesz tightens its grip on the levers of power ahead of elections next year. RWE said it is to slash its investment in Hungary by 50% this year, citing the government's "completely unacceptable" policy moves, which it said amounts to "virtual expropriation".
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