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Uphill struggle to make profits

KBC Bank of Belgium and Dutch ABN Amro have not had an easy time in Hungary. After KBC took a strategic stake in Kereskedelmi és Hitelbank (K&H) in 1997, the bank lost Ft8.3 billion ($12.58 billion) in 1999. ABN Amro's Hungarian subsidiary was in the red by Ft19.8 billion last year despite a $96 million capital injection.

The losses hurt. Hungary is strategically important for both banks. KBC has made central Europe a key market. Of all western banks, it has invested the most in the region. ABN Amro has turned Magyar Hitelbank, the local commercial bank it purchased in 1996, into one of five "pillar" institutions around the world that offers a full range of banking services. Its Hungarian operation is the largest ABN Amro bank now in terms of balance sheet total in the central Europe, Middle East and Africa region. Foreign banks, which hold about 48% of the banking market in Hungary, are battling to solidify their position amidst increasing competition. Bank watchers say a consolidation is coming; the only question is who will swallow whom. K&H and ABN Amro rank among the five largest banks in Hungary in terms of balance sheet total, but they could still be vulnerable.

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