Kester Eddy in Budapest -
It seems Gyorgy Matolcsy, the recently appointed head of the Hungarian central bank, and his HUF500bn (€1.7bn) cheap credit plan designed to boost Hungarian small and mid-sized businesseses (SMEs), is winning over some big hitters.
Last Friday, April 26, Sandor Csanyi, executive chairman of OTP, Hungary's largest commercial bank, lauded the new governor, and his "Funding for Growth" plan, saying "for the first time for 23 years, Hungary had a central banker who, along with monetary policy, also pays attention to the real economy," the daily Nepszabadsag reported.
Csanyi pledged his bank would support the credit programme, with OTP matching any stimulus funds provided by the central bank with its own money, also under especially favourable conditions.
A few days previously, Mihaly Patai, president of the Hungarian Banking Association (and head of UniCredit's Magyar operations) praised Matolcsy as "the best governor of the National Bank."
Such plaudits are at odds with the storm of criticism Maltolcsy raised when, as minister of economy in 2010, he introduced his "unorthodox" economic policies, which imposed punitive, retro-active sectoral taxes on - amongst others - banks in Hungary. "Funding for Growth" was greeted by most analysts with relief and a good dollop of scepticism when first announced by Matolcsy at the beginning of April.
Relief because the plan does not involve very large sums of the bank's precious foreign reserves, and scepticism because it lacked detail. Just who and how would companies access the promised funding, to be provided free of interest by the central bank to the commercial banks, who could then lend on to entrepreneurs at a maximum interest of 2%. "Headline rates for forint loans from banks are around 11%, but when all the charges are added in, I think you will find the real APR [ie. equivalent interest rate to cover all costs] is closer to 16-17%," one Hungarian banking insider tells bne.
Compared with these figures, the possibility to access credit at 2% appears almost too good to be true - which is, indeed, part of the problem. "The idea of dumping this money on the market is possibly a good one, but with so many details unclear, it takes quite a lot of work to make it useful," says the banker, who is close to the ongoing negotiations between the MNB and commercial banks. "There is a lot of room, either for a version which is possibly profit making for the banks, or for a version which is simply a catastrophe for them. They want to have the money in the shop window before the summer slow down, so things are frantic."
The good news is that, at least at the negotiating level, the MNB team has competent leadership. "I hear pretty detailed descriptions of the players, and one of the guys that's in charge of this programme has been there for 12 years - he understands. Whether the decision makers realise what the key issues are, that's more of a question."
The wrangling starts with the very definition of what constitutes an SME - each bank has its own set of criteria, ranging from HUF0.2bn-1.2bn in annual turnover. Meanwhile the EU definition of SME encompasses all but 1,000 of Hungary's 700,000 active registered companies
Then there are the sums involved: the two tranches of HUF250bn - the first providing cheap credit, the second to relieve companies of burdensome foreign-currency loans, are not large compared to the market. As the Banking Association's Patai noted, "this fresh money will not change the world" - the two tranches of HUF250bn comprise "only a small percentage" of the total HUF8,000bn in outstanding corporate credit in Hungary.
But, says bne's banking source, the HUF250bn (€830m) designated for cheap credit makes up about 10% of current outstanding loans to SMEs, as defined by the local financial regulator. This is the "more interesting and complicated" component of the package, he says.
So far, in one of the few clear guidelines, MNB has argued for a maximum ticket size of HUF50m (€167,000) per company. "A HUF50m top limit is money for companies with 100, 200, maybe 500 employees. It's actually a good sign in the sense that there is some clarity, says the banker.
But, for example, it is not clear on what basis the money will be distributed amongst the commercial banks. "There's already a big fight between banks - for some it would be good to have client numbers, for others market share," says the insider.
Then there are the repayment terms. As the banker put it: "This was slightly disappointing, because, in the negotiations they said; well, who cares? That's one of the hints that the whole thing is an electoral [ploy] - because it's really like, 'let's just give them the money' [regardless]!"
Even more complicated are the margins and, as the banker puts it, for the banks, "the tiny question of will we ever see this money back?"
As the banks are currently charging 4-5% merely for risk, without some form of government guarantee, any thought of banks lending for 2% - or the 2.5% which they are holding out for - is "very, very dead," especially if there is any effort to bias lending towards certain sectors or the more deprived provinces. "There may be some logic to this, but when you want to help those who are most in need, then the risks go up," says the banker.
With the central bank still aiming to reach a framework agreement by the end of April, the pressure to deliver has led to frantic activity on both sides. "There are meetings, often, twice a day: it's quite intensive. It has to be," the banker says.
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