Banks could quit Hungary, claims lobbyist

By bne IntelliNews December 3, 2012

bne -

The new head of the Hungarian Banking Association warned that certain foreign banks could pull out of the country due to continuing pressure from government policy. However, he failed to name names.

Several parent banks are considering reviewing their strategy in Hungary given the ongoing series of measures loading additional taxes onto the sector, Daniel Gyuris, chairman of Magyar Bankszovetseg, told Nepszabadsag in an interview published on November 30. The extension of the banking tax at full value, rather than the 50% cut agreed with the industry lobbyist, saw his predecessor Mihaly Patai quit the post in protest in November.

Since then, however, the government has also pledged that it will not halve the tax in 2014 either. Gyuris said he trusts that the banking levy will not remain in its current form in the future. If it did, he cautioned, certain incentives would have to be attached to lending if banks were to reduce extra costs on credit to households and businesses.

The same day that Gyuris' threat was published, Prime Minister Viktor Orban - who has brushed aside criticism that his government's rough treatment of the banks will slow growth by declaring that "it makes no difference as they're not lending anyway" - pledged on public radio that the tax regime as it is in 2013 is complete, and will remain permanently.

That puts the ball back in the banks' court. Gyuris claimed that they're mulling options that could include complete withdrawal from Hungary, or perhaps branch closures. He added that he hopes that parent banks would not resort to such a course of action since part of the government's economic policy, besides sticking to budget deficit targets, is to kick-start growth.

However, while branch closures certainly sound possible - several banks carried out such action in 2011 as they struggled with the punitive early mortgage repayment scheme - the threat of exits is less likely. Chances are that Gyuris is looking to make a splash as he takes over his new post.

Ever since the Fidesz government began sticking the boot in on coming to power in 2010, the banks have been complaining bitterly. However, they've also been careful to reiterate their commitment to remaining in the market. After years of investment and with the likelihood of unloading assets at a decent price at less than zero, waiting out the storm for political change appears a far more practical tactic than upping sticks.

Clarifying that stance, Raiffeisen Bank International CEO Herbert Stepic last week accused Hungary of treating the banks like a "self-service shop", and that RBI may look at its strategy. However, he was also careful to reiterate that the Austrian lender has no plan to withdraw from the country, or any other in CEE - and the prospects of profitability in several of those are far worse than in Hungary.

According to MTI news agency, Gyuris added that apart from one or two specific measures pursued by both sides, the banks are not seeking cooperation with the government on a more general agreement. The association continues to remain open to a good partnership with the government on necessary and important issues on a case-by-case basis, he added.

"There is a need for a strategic agreement [between the banks and the government] so forward planning, at least for the medium term, would be possible. And for that you need predictable economic policy and a transparent legal environment," he added.

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