RBI mulls offers for Hungarian unit

By bne IntelliNews November 20, 2013

Tim Gosling in Prague -

Raiffeisen Bank International said on November 19 that it is examining offers for its Hungarian unit, despite recent claims from the CEO of Emerging Europe's second largest lender that it would like to remain in the market.

According to Reuters, a spokeswoman confirmed a report by the Austria Press Agency that quoted her as saying: "There are interested parties in Hungary whose offers we are reviewing".

The news comes a day after RBI said in a statement intended to "clarify" media reports and prevent "false expectations among investors" that it cannot rule out an exit from the struggling markets Hungary, Slovenia and Ukraine. It insisted it has not reached an agreement to sell Ukrainian subsidiary Aval, but admitted that it is in talks over the bank's future.

However, just three days earlier CEO Karl Sevelda made a special case for Hungary. "We want to stay in Hungary, you shouldn't forget we went there in 1987 as the first eastern European market," Sevelda said, according to Portfolio.hu. "There's a lot of heart and soul in that. Hungary as a neighbouring country certainly has a higher priority."

However, the pressure on foreign-owned banks operating in Hungary since the Fidesz government took power in Budapest in 2010 continues to rise. The loss reported by the Hungarian banking sector in 2011 shocked because it was the first dip into the red for 13 years. The government has placed huge tax burdens on the sector, and is pushing to implement a scheme to reduce foreign-currency debt that is likely to push lenders into further losses.

RBI has been looking to slash investment in CEE since Sevelda was appointed to head the bank in June. His predecessor Herbert Stepic, who had spearheaded an aggressive push into the region during his time at the helm, had his resignation accepted on June 7 following press reports concerning offshore investments. The policy since has only supported speculation that Stepic was forced out by shareholders unhappy at RBI's emerging market strategy.

Less than a month into his tenure, Sevelda announced a "massive" cost-cutting plan targeting "triple-digit million" euro savings in Hungary and Slovenia. A rising level of bad loans has blighted the banks in both countries. That has put RBI under pressure to raise fresh capital, a move that was forced on compatriot Erste Bank Group - CEE's third largest lender - in August.

All in the plan

The exit of foreign banks to give Hungarian players a greater role in the sector is a clearly stated goal of Prime Minister Viktor Orban, who appears unperturbed by the fact that lending has virtually ground to a halt. In a scenario that looks to resemble the ongoing push to rid the utilities sector of foreign players, the plan now seems to be to hammer down valuations to the point where the state can afford to buy them out.

Foreign banks have pledged repeatedly since 2010 that they are in for the long haul, with RBI among the most vociferous. However, the apparent change of tune in Vienna makes RBI just the latest - if not the biggest - in a line of lenders that have slowly come out of the woodwork to admit they've had enough. Italy's largest retail bank, Intesa Sanpaolo, said in March that it might call it quits and Bayerische Landesbank is seeking a buyer for MKB. However to date, just one deal has happened: Italy's Banco Popolare agreed to sell its small subsidiary to Hungary's MagNet Bank for just €500,000 in April.

Others are ready to go, Hungary's central bank claimed on November 7. "If this situation [low profitability in Hungary] becomes permanent, the consolidation of the banking sector could accelerate," Marton Nagy, the Magyar Nemzeti Bank's managing director, told reporters, according to the Wall Street Journal. "Big banks are deleveraging massively and shedding their external exposure," he said, without specifying which banks may leave the country.

However, the exodus will take some time while balance sheets are unwound, he admitted. Foreign parent banks currently hold around €10bn at their Hungarian units to finance operations, he said, and that is clearly too large an amount of capital to withdraw suddenly. Therefore, banks will only be able to sell once they deleverage, meaning any consolidation of the sector is likely to be gradual. The rest of Emerging Europe is still busy fighting deleveraging, which was earmarked as a prime channel by which the Eurozone crisis would hit CEE.

At the same time, the list of potential suitors for the likes of RBI or MKB looks limited. Most of Hungary's major banks are foreign-owned. The one exception is OTP, the country's biggest lender, which was reported to be in talks with Bayern LB, as well as the foreign parents of several other smaller lenders, back in May. However, news flow surrounding OTP's hunt for acquisition targets has fallen by the wayside in recent months.

Formerly seen as close to Orban, OTP CEO Sandor Csanyi has had a very public falling out with the ruling Fidesz party over its plan to revisit the forex debt issue. Csanyi has issued alarming warnings - far more nightmarish than those from any of his foreign peers - about a potential meltdown in the Hungarian banking sector and the wider economy, and he and many of his OTP colleagues have dumped huge volumes of OTP shares.

The central bank's Nagy offered a hint of the state's plan in his presentation to reporters, noting that while the country's large foreign-owned banks continue to struggle, smaller and partly state-owned banks are fairing better. Most are avoiding losses this year, he claimed, crediting the central bank's interest rate cuts and its "Lending for Growth" stimulus programme.

Such lenders include Takarekbank, he noted, which is controlled by the state with a 55% stake. The savings cooperative bank was recently beefed up by being handed control of the country's huge network of small municipal banks. Granit Bank and Szechenyi Bank, both 49% state owned, were also mentioned.

These banks will replace the big ones quitting the market, Nagy said. "The question is whether the small banks and Takarek will be able to beef up their liquidity, capital positions and personnel to grow up to that tall order," he added. Budapest has pledged to inject HUF100bn (€335m) into Takarekbank, although that may have to wait until after elections in spring next year, with the government needing funds ahead of the vote to keep a lid on fiscal indicators.

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