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Hungary is set to pump HUF100bn (€335m) into the state-controlled cooperative bank network Takarekbank, as the government looks to boost lending and extend the role of the state in the country's banking sector. Budapest says it plans to sell unnamed state assets to power the plan.

Prime Minister Viktor Orban's ruling Fidesz party will spend the cash to "reorganize" the country's cooperative banks, a government spokesman told MTI on June 24, according to Reuters. Andras Giro-Szasz told the news agency the government will find the cash by selling state assets. However, he offered no details on the reorganization, nor on which assets might be sold to finance it. Market speculation however, instantly turned to the state's 21% stake in energy giant MOL.

The banks remain key for the populist Fidesz, which began hammering the foreign-dominated sector as soon as it took power in 2010, leveraging the anger over the banks' role in the global crisis to help push through a high emergency tax. That has been followed by further levies, as well as schemes forcing them to take losses on foreign currency loans. Unsurprisingly, the banks have pulled their heads in, and lending activity has dropped through the floor, helping to plunge the country into recession.

Desperate to maintain a constitutional majority at next year's parliamentary elections, Orban needs to turn that around. The urgency to offer the electorate some brighter prospects has already sparked a scheme from the central bank to push cheap loans. The Fidesz-controlled Magyar Nemzeti Bank rolled out the Funding for Growth Scheme on June 1, providing 0% refinancing loans worth HUF750bn to commercial banks to lend to small businesses at a margin of no higher than 2.5%.

Takarekbank, the umbrella group for Hungary's savings cooperatives, is at the forefront of the scheme, despite currently holding just 5% market share overall. However, its wide network of 1,600 outlets - constituting close to 40% of bank branches in the country - helps make it an ideal vehicle for the conservative Fidesz to make its mark amongst its core electorate beyond the major urban centres.

The bank has long been identified by Orban's government as key to increasing the state's role in banking. Late last year, the PM said that "at least 50%" of the country's banks should be Hungarian-owned. While, a couple of small-scale deals involving sales by foreign owners have gone through since, and the country's biggest bank OTP claims to be negotiating with more than one potential seller, there's a long way to go to reduce the influence of the major Eurozone groups, which currently control around 90% of the market.

Last year, state development bank MFB bought the 38% stake in Takarekbank held by Germany's DZ Bank. The local cooperatives hold a 56.6% majority. The acquisition was part of a strategy announced by Orban for the state to fill the lending void. That included plans for a state-owned commercial bank, however, with the budget stretched - and Budapest also pursuing "strategic" assets in other sectors, such as energy and autos - an expected bid for Granit bank was dropped last year.

That leaves MFB to try to leverage the cooperative banking network to spread the cheer. "It is not the MFB group's job to move instead of commercial banks," CEO Laszlo Baranyay said as the development bank put in its offer for the Takarekbank stake in May 2012. "But there are times when - for a transitionary period - we need to take their place."