Tim Gosling in Prague -
Officials from Hungary's central bank claimed once again on May 20 that an exodus of foreign lenders is expected in the coming months. The country's banks however insist they're going nowhere.
Several banks are set to leave Hungary and the number of major lenders in the market is also expected to decline in an ongoing transformation of the sector, Magyar Nemzeti Bank (MNB) director Marton Nagy told a banking conference. "Consolidation has started, although for now it only means a shifting of market shares, but nobody has any doubt that several banks will leave the country," he pronounced, according to Portfolio.hu.
The claim comes a day after the head of the Hungarian Banking Association said that the four or five banks currently in a difficult position will now choose to reduce their size rather than exit the country, despite the fact that they are likely to face a high bill on foreign currency loans. The government said this week that its planned relief scheme for borrowers with forex loans will now be revealed in the autumn.
However, Nagy soldiered on. "There may have been statements to the contrary but we still think there will be fewer large banks on the market," he said. Adding an ominous note, he also warned that the sector will end up with a poor structure if the market is entrusted with its own consolidation.
The central bank, now controlled by Georgy Matolcsy - a close ally of Prime Minister Viktor Orban - said in November that it expects up to half of the country's large foreign banks to withdraw from the market. Nagy suggested around the same time that foreign banks hold around €10bn in assets at their Hungarian units.
Orban has previously demanded that the banking sector should be mostly in Hungarian hands. Following up on that theme, Nagy suggested bank ownership should be "diversified". He claimed that Hungary and the Czech Republic are examples of foreign dominance, marking out Slovenia as a good example of local ownership. Ljubljana avoided an international rescue by the skin of its teeth last year, as it was forced to bailout its large state-owned lenders.
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 out 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 Bank International and UniCredit Group have since reiterated that they intend to remain.
In November RBI had admitted it was studying offers for its Hungarian unit. However, by January it emerged that it had received just one - a €1 bid from the tiny Szechenyi Kereskedelmi Bank - majority owned by the CEO of the Government Debt Management Agency with the state holding 49%. That was revealed as RBI issued financial accounts showing it recapitalised the subsidiary at the end of 2013.
The debacle illustrated the lack of serious suitors in the market, should any of the banks be looking for an exit. The one serious candidate, local giant OTP, has only just returned to talk of acquisitions, having spent the last year or so in conflict with the government over its policies towards the sector. As bne reported in April, the country's biggest bank is said to now be ready to offer Bayerische Landesbank a route out of Hungary.
The German bank has to sell MKB - Hungary's fourth largest lender - by 2015 to meet the terms of a 2009 state bailout. However, the extent to which OTP's relationship with the government has been patched up and the depth of the bank's appetite for acquisitions is unclear as yet. CEO Sandor Csanyi did, however, suggest recently that he thinks up to five banks could seek a Hungarian exit in the medium term.
With the major EU banks that dominate the market having reiterated their commitment to the market this year, the claim that they are now set to throw in the towel seems unlikely. A year ago when they faced huge uncertainty in Hungary over government policy, at a group level some were clearly tempted, but when it came to the crunch there were no reasonable suitors or offers. While certain lenders still need to sell - MKB being the prime example - most look to have weathered the storm.
Although the wait for a forex loan scheme drags on, the government is clearly wary of provoking a legal challenge or rocking the economic recovery boat, and the general consensus is that although costly, the eventual programme will not prove to be devastating for the banks. "Our base case," wrote Commerzbank on May 20, "is eventually for a burden sharing agreement between banks, borrowers and the government (the latter through loss deduction against the bank levy) drawn out over a multi-year timeframe."
That outlook is far brighter than the fears that stalked the market last year. At the same time, the delay on a new relief scheme has seen non-performing loans rise dramatically. That €10bn portfolio will hardly have budged in the last six months therefore.
Meanwhile, the election in April - which saw Fidesz retain power for another four years - at least passed without additional populist policy, either regarding the banking sector or state fiscal management. The Hungarian economy is also looking much brighter, which should allow lenders to cut losses. The Eurozone is also in recovery - albeit at a slower pace - meaning less pressure on the parent groups to cut investment to subsidiaries or even sell them. With government pressure remaining in Hungary, valuations are likely close to the bottom. All of which suggests any exodus would only come under duress.
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