bne IntelliNews -
Hungary’s central bank will take MKB Bank under its wing and offer it a safety net as it undergoes restructuring, the governor of the Magyar Nemzeti Bank said on December 18.
At the request of the government, the MNB will reorganise the loss-making MKB - which was bought by the state earlier this year - as the first step to clean up its portfolio, Gyorgy Matolcsy said at a joint news conference with Prime Minister Viktor Orban.
The central bank will guarantee the full liquidity of the bank, he said, according to MTI. The state could eventually seek to sell the lender via the stock exchange, he added.
The government aims to make MKB one of the country’s top three lenders. Hungary completed the acquisition of the country's fourth largest bank from Germany's BayernLB in October. Earlier this month it also signed a preliminary agreement to buy Budapest Bank from GE Capital.
Asked whether the government plans to merge the pair, Orban said a decision will be made after Budapest Bank’s acquisition is completed in May or June. The government said it will sell the two banks within three years.
The recent acquisitions brought domestic ownership in the banking sector to over 50%. Orban’s government is seeking to raise that share to as much as 70%, and maintains that an exodus of the foreign banks that control the rest of the market is underway.
However, the foreign banks insist they are committed to the Hungarian market and are going nowhere. In reality, they are trapped. They hold huge portfolios, and given the effect on valuations of the government's tough and erratic policy, would struggle to escape without huge losses. Austria's Raiffeisen mulled a sale of its local unit in late 2013, but quickly reversed when it recieved one bid of €1.
BayernLB was in a different position. It was obligated to unload MKB by the end of the year under the conditions of a bailout in 2009. The Hungarian unit was in very poor shape and dragging on its German parent. It lost €409m last year, following a €308m loss in 2012.
Much of the damage came from its high exposure to the Hungarian real estate market. MKB was one of the biggest players in financing for the sector. Its stock of large corporate property loans amounted to gross HUF574bn at the end of 2013, according to Portfolio.hu.
Following the deal to sell to the state for €55m (HUF17 bn) plus the parent's waiver of €270m in claims, Markus Soder, finance minister of shareholder Bavaria, proclaimed: "We got away with a black eye."
The MNB said in a statement that it will control MKB for up to a year, but will not put in any new capital. The restructuring will include cost cutting and the clean up of its books.
That will most likely happen via the bad bank for commercial real estate loans that the central bank launched in November. It will start buying toxic commercial property loans and foreclosed real estate from banks to clean up their balance sheets in early 2015.
Orban claims that having more banks in local hands should spur lending and in turn support economic growth. The central bank is currently the main source of credit in the economy via its "Funding for Growth" scheme.
Orban announced in mid-December that the government is in talks with lenders. The PM says he has offered to lower the high tax burden Budapest has placed on the sector in exchange for increased lending. Orban suggests the levy is set to fall in 2016 or 2017.
At the news conference Orban reiterated claims that the government is in talks with Austrian banks Erste and Raiffeisen about ways of cooperating and the government's expansion in the sector. The Hungarian units of Erste and Raiffeisen are among the country’s top banks.
However, a Raiffeisen spokeman said via email that no discussions with the Hungarian government have been held, reports Reuters.
In addition to paying EU’s highest bank tax, lenders in Hungary are suffering huge losses from a relief scheme for mortgage borrowers and are forced to repay to clients about €3bn after courts deemed past lending practices unfair. Further losses are expected from the forced conversion of forex loans, due in the first half of 2015.
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