Hungary to make bank tax link to lending growth concrete

By bne IntelliNews October 13, 2015

Gabriela Gandovska -

 

Hungary's central bank plans to introduce a set of measures aimed at "encouraging" banks to boost lending to support the slowing economy, a senior official said on October 13.

The comment illustrates that Hungary continues to follow a twin track in its approach to the banks. On the one hand, it has promised to cut the punitive sector tax unconditionally. On the other, officials have consistently hinted that in reality, the reduced levy is intrinsically linked to raised lending.

The plan, expected to be announced in the middle of next month, may include "unconventional" steps, Vice Governor Marton Nagy told reporters in Vienna, according to Bloomberg. "The biggest challenge is how can we get the banks to start to lend. The central bank will try to find some tools, positive incentives, for banks to start to lend on a market basis", he added.

Under a deal reached with Austria's Erste and the EBRD in February, the Hungarian government pledged to cut the bank tax - the highest in Europe, introduced shortly after Fidesz took power in 2010 - as of next year. The reduction has been written into the 2016 budget, which was released early this year in a bid to convince the ratings agencies - which openly expressed scepticism - that Budapest would follow through on its promises. 

Under the legislation, approved by the parliament in June, the levy would be cut to 0.31% of total assets in 2016 from the current 0.53%. More cuts will follow between 2017 and 2019. Still, even after the reduction next year, the bank tax will remain Europe's highest.

However, battered by erratic policymaking over the past five years, the banks remain wary, and the promised tax cut has so far failed to boost credit to the economy. The latest data from the central bank shows corporate lending continues its long downward trend, shrinking 3.4% in the second quarter.

The government has consistently reiterated that the bank tax cut will not be conditional on increased lending. However, individual ministers and the central bank - now filled with senior officials close to Fidesz - have strongly suggested in word and deed that in reality that is exactly how things stand. The Magyar Nemzeti Bank now appears ready to put that in writing.

"The bank levy can decrease but, on the other side, the (banks) should perform some credit growth, as a condition, in the corporate sector or mainly in the SME sector, to get this bank levy decrease", Nagy said, according to Reuters.

"We want to maintain this agreement", Nagy said. "But you can ... somewhat change the agreement in the direction we are asking for ... in order to really make the agreement more balanced, which means you give something and the other also gives something."

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