Hungary’s foreign banks are adamant that they’re in for the long haul. But with a deeply hostile government, a hefty tax bill in the offing and huge mortgage portfolios sinking ever further underwater, is their position sustainable? Lucy Fitzgeorge-Parker reports.
WHEN AN OBSCURE Budapest newspaper reported in mid-October that three “not small” foreign-owned banks were considering pulling out of Hungary, it prompted a surprisingly vigorous response. Head offices from Brussels to Turin hurried out press statements in which the words “commitment”, “strategic” and “long-term” featured heavily. A couple even found time to call Euromoney and ask for interviews with senior management to be pulled, so sensitive had the issue become.
The problem was that the story, although unsubstantiated, was all too believable. Hungary’s banks have had a torrid two years – non-performing loans climbed relentlessly to reach 8.5% at the end of June as large portfolios of Swiss franc- and euro-denominated mortgages sank ever further underwater while at the same time new business failed to materialize because of stagnant domestic demand. Worse still, the new Fidesz government, elected in May with a two-thirds majority in parliament, promptly imposed a Ft200 billion ($1 billion) tax on the sector in a bid to fill the hole in Hungary’s budget.
The introduction of the tax was not unexpected. Hungarian voters were furious that, as households struggled to meet ever-increasing monthly mortgage payments, the banks had continued to post substantial profits.