KBC denies report it's ready to quit Hungary

By bne IntelliNews January 31, 2014

bne -

Belgian banking group KBC Group denied on January 30 a report in the German press that said it plans to sell its Hungarian unit.

German newspaper Handesblatt claimed the same day that KBC, which owns Hungary's third largest bank in terms of assets K&H, is the latest European banking group to be looking to quit the country. Hungary's bank sector is under huge pressure from government policy that has imposed high taxes and loss-making schemes for foreign-currency loans upon the sector.

However, KBC said in an email quoted by the Wall Street Journal that its stance towards Hungary has not changed, and insisting the report has no foundation.

The parent banks of several of the country's largest lenders suggested late last year that they could be ready to leave Hungary, with Raiffeisen Bank International admitting to be mulling offers. However, with the banks holding huge and poorly-performing loan portfolios and few realistic suitors around, as bne reported recently, foreign banks appear to be stuck for the meantime.

RBI revealed on January 28 that it had injected €55m of capital into Raiffeisen Hungary in December. Reports claim that the Austrian lender received a bid of just €1 for the unit from Szechenyi Kereskedelmi Bank - a tiny bank 100-times smaller than the takeover target and majority owned by the CEO of Government Debt Management Agency AKK and the state.

That offer - both the size and the bidder - illustrates the problem facing Hungary's foreign banks, which are bracing themselves for more losses as the government builds another scheme to force them to shoulder losses on forex loans. The ruling Fidez party is expected to win another term in office at elections in April, suggesting little respite is on the way.

Prime Minister Orban has announced he wants to see more of the Hungarian banking sector in local hands. In December, the central bank's governor, Gyorgy Matolcsy, said half of the major banks operating in Hungary could leave within 18 months.

The ongoing pressure on foreign owners is now seen as a programme to push the valuation of their units lower to allow the state to buy them out - just as has been done in the utilities sector. "The government's strategy is to bring the net present value of foreign bank operations to zero, so it can then be transferred into local hands," Peter Attard Montalto at Nomura told Reuters on January 29.

The speculation that the Belgian group, which has a huge state bailout to pay off, is looking to call it quits comes just two weeks after it last denied it plans to exit. On January 12, K&H head Hendrik Scheerlinck told Reuters: "We can rule that out completely. We believe in Hungary, it is an important part of the strategy, and we have a clear growth strategy in this country. We want and we will be an important player in financing the Hungarian economy."

With a loan/deposit ratio of just 58%, Scheerlinck said K&H had abundant liquidity to expand lending. However, due to government policy and the high level of non-performing loans, the banks have practically stopped lending.

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