Hungary's OTP in merger talks but warns against driving out foreign banks

By bne IntelliNews May 14, 2013

bne -

OTP Bank is discussing the acquisition of a pair of Hungarian banks as their foreign owners look to quit the country due to rough handling from the government, the CEO of Hungary's largest lender claimed on May 13.

Sandor Csanyi told InfoRadio: "In one case we have already submitted a bid, not a binding one but a written bid, and in another case we are in the final stage of the talks." He added that the processes could take three to four months, and that there is no certainty that OTP's bids would win because it has a conservative approach to pricing, reports Reuters.

The executive also criticized the government's harsh taxation of the banks, which apart from OTP are overwhelmingly foreign owned. "In the long term these taxes are clearly anti-growth and that should be changed, otherwise there will not be sustained growth and then the budget consolidation happened in vain and will not be sustainable," Csanyi said. "The Hungarian bank tax is 15-times the EU average... That cannot be sustained for long, or sooner or later banks who post losses quit from Hungary."

Prime Minister Viktor Orban earlier this year called for greater Hungarian ownership in the bank sector. While OTP is clearly happy to expand its market share at foreign-owners' expense, the CEO cautioned that Budapest must be careful not to drive too many away. The country will not be able to finance economic recovery if too many foreign banks withdraw, Csanyi warned.

"There are visible signs that some banks want to leave Hungary and these are not small banks," he said. "The question is who will buy these: another foreign bank which stays in Hungary or OTP or (state-owned development bank) MFB?"

Dominated by Eurozone groups, Hungary's banking sector has been hit hard since the Fidesz government came to power in 2010. High windfall taxes, one-off schemes to reduce foreign-currency debt amongst households and a new financial transaction tax drove the sector to its first loss in 13 years in 2011, and that continued last year.

Although they've pulled back heavily on investment and lending, the foreign banks have insisted throughout that they remain committed to the Hungarian market. However, that determination has started to crack as the pressure rises. The latest concern is a suggestion from the economy ministry that it may look to raise the new financial transaction tax again next year in a bid to reduce the budget deficit.

The CEO of Italy's largest retail bank, Intesa Sanpaolo, said in March 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.

Last month saw the first exit, when Italy's Banco Popolare agreed to sell its small subsidiary to Hungary's MagNet Bank for just €500,000.

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