Dr. Levente Kovács, Secretary General Hungarian Banking Association
Dr. Levente Kovács, Secretary General Hungarian Banking Association

Hungary is among Europe’s most advanced transition countries concerning financial sector reforms, and its liberalised banking sector is dominated by foreign banks offering world class services. The Hungarian economy has been severely hit by the global financial crisis and recession in its main export markets, however, and some current financial sector policies have been criticised by the EU and the IMF. To cope with the challenges, Hungary’s Prime Minister Viktor Orban recently said he would propose a new law on the central bank that will be in line with EU demands, and he has promised to promote fiscal discipline. Observers believe that Hungary will soon restart talks with the IMF and the EU concerning additional financial support.

Meanwhile, in a show of confidence in Hungary’s long term prospects, the EBRD has announced it will continue to fund financial sector projects in Hungary. The EBRD’s support for the Hungarian financial sector will include targeted long term financing and new products for selected financial institutions as well as measures to help develop local capital markets.

Banking sector a key success story

The banking sector remains one of Hungary’s success stories. Dr. Levente Kovács, Secretary General of the Hungarian Banking Association, explains, “Hungary’s banking system was privatised in the mid 1990s and today most Hungarian banks are subsidiaries of major European and or US banks. These foreign major shareholders brought their banking culture, technologies and know-how to Hungary, so that today Hungarian banks offer the same high level of services you will find anywhere in the EU or Euro zone. In addition, Hungarian banks followed a very conservative lending policy before the crisis, and this is why our banks are still stable. In fact, Hungarian banks still have the necessary liquidity to satisfy the needs of clients who are acceptable from a risk analysis point of view.”

Hungary’s banking industry was the first sector in the Hungarian economy which successfully completed ambitious reform measures to bring it up to EU standards and it remains a key driver of the national economy. Dr. Levente Kovács says, “Looking back over the past 15 years, you will see that the Hungarian banking sector has always been quite profitable. As for the global financial crisis, the efficiency and cost saving procedures adopted by banks were more effective in Hungary than in any other country.”

“The Hungarian banking sector is sound and stable and ready to support business projects.”

High capital adequacy ratio

The banking sector’s capital adequacy ratio remains around 12% to 13%, very high by European standards. In addition, no Hungarian bank required a bailout during the economic crisis. The crisis led to deterioration in the loan portfolios of many Hungarian banks, though no more so than elsewhere in Europe, even though taxes levied by the government on Hungarian banks are “10 times higher than in other countries”, according to Dr. Levente Kovács.

Hungarian banks will have no problems meeting the capital adequacy ratios required by Basel 3, Dr. Levente Kovács points out. He adds, “The answer to how Hungary will meet Basel 3 is an answer for the government rather than the banks. The issue is how the Hungarian government is going to meet contractual obligations towards the EU in the convergence programme, including reaching and maintaining our deficit targets, decreasing foreign debt and supporting economic stability.”

Hungary’s banking sector remains a major draw for international investors. Dr. Levente Kovács notes, “The Hungarian banking sector offers international standard services, adequate liquidity, and banks which can draw on the support of the global groups to which they belong. Cross border financing is readily available.”