When Hungarian prime minister Viktor Orban put his name to a peace treaty with the banking sector in February, the response from the country’s foreign lenders was one of overwhelming relief.
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Viktor Orban, |
In the five years since Orban’s Fidesz party took power, a toxic combination of hefty bank levies, arbitrary regulation and unremitting hostility on the part of policymakers has made operating in Hungary a stressful and expensive business. The news that the government had signed up to a swathe of measures designed to support the sector, including phasing out the bank tax, was therefore always going to be warmly welcomed.
Doubts about the good faith of Fidesz are inevitable, but have been partially allayed by the European Bank for Reconstruction and Development’s endorsement of a Memorandum of Understanding (MoU) and still more so by the fact that reconciliation with the banking sector is now clearly in the party’s own best interests. The spat with the banks has caused credit to dry up and lost Hungary its investment-grade rating, both of which are increasingly acting as a brake on economic growth.
What is more, with the acquisition last year of MKB and Budapest Bank, the government has itself become a big stakeholder in the banking sector – and will become an even larger one when, under the terms of the MoU, it takes a ‘symbolic’ 15% stake in Erste’s Hungarian subsidiary.
Symbolic benefits
Hungary’s foreign banks would be rash, however, to assume that their troubles are over. Even Erste, the government’s new best friend, faces a number of potential pitfalls.
Firstly, the value of the stake to be taken by the state will have to be fixed. It will then remain to be seen whether the government will be content to receive purely symbolic benefits or expect something more substantial in the way of a dividend.
For other foreign lenders, the challenges could be even greater. The government will also have even closer ties to the new national champion created from the merger of MKB and Budapest Bank.
The net result of all this manoeuvring, therefore, will be to bring two leading players – Erste and the new local creation – within the government’s sphere of influence. As current domestic champion OTP is likely to retain its market leadership despite falling out with Fidesz, the remaining foreign-owned banks could be left with fairly slim pickings as corporates and individuals opt for the perceived security of government-linked lenders.