The bank tax offered a partial answer. It was a decisive move from the Government intended to stabilize the budget, asking a sector of the economy that had fared very well over the last ten years to make a fair contribution to overcoming the country’s deficit.

Guess what. Along with several other initiatives it worked, so well in fact that other countries followed suit with similar taxes on the banking sector. Currently, banks pay the highest amount to the budget in Slovakia and 15 of the 28 EU member states have some form of bank tax. (http://mno.hu/magyar_nemzet_gazdasagi_hirei/kapossa-valhat-a-magyar-gazdasagi-modell-1202147) Austria, home to the most important foreign players in the Hungarian banking sector, is just about to vote on a further increase to their own bank tax.

Rumors of banks leaving the country have persisted, however. Most recently, the story was that Austria’s Raiffeisen Bank would leave Hungary as a result of the bank tax and would be bought up by a small, Hungarian bank in which the Hungarian state has a minority stake. It became clear rather quickly that the rumor was false. KBC, the Belgian owner of the Hungarian K&H Bank, told Reuters recently that leaving Hungary is out of the question. “We believe in Hungary, it is an important part of the strategy, and we have a clear growth strategy in this country,” said Hendrik Scheerlinck, head of KBC’s K&H Bank. “We want and we will be an important player in financing the Hungarian economy.” Smaller banks, of course, have been sold and bought up by bigger players in the past, but rumors about major foreign banks withdrawing from the country have remained just that, rumors.

Portfolio.hu ran an article last week entitled “A happy country: no foreign-owned bank wants to exit Hungary,” providing a quick look at the Hungarian subsidiaries of foreign-owned banks and found that big banks are committed to staying in Hungary.

“The million dollar question is what conclusion the government will draw from the banks’ relentless commitment to their presence in Hungary, especially with regard to their burden-tolerating level when it conceives the assistance programme for FX borrowers before the election due in April or May,” the article concludes.

Well, here’s what the Government has said. We’re committed to keeping the deficit within the 3 percent threshold and the bank tax will remain effective as long as it is necessary to maintain that. Secondly, the Central Bank is expanding its lending program, providing financing to banks at 0 percent for further cheap lending to businesses at a maximum of 2.5 percent. The program, called Funding for Growth and specifically targeting small and medium-sized enterprises, is intended to boost the economy, but it also provides decent revenues for the banking sector. Thirdly, Hungary’s top court has ruled on the FX loans, and the Government has to respect that ruling.

Together in good times and bad. Foreign banks made great profits in Hungary even after 2008, often at rates higher than they charged in other countries. But most importantly, Hungary has been good business for these banks through economic boom times and in recession. Now that the Hungarian economy is showing early signs of recovery, hopefully we can all look forward to more good years.

By Ferenc Kumin

Source: A Blog ABout Hungary