Hungary Lifts Control in Bank Industry With Savings Cooperatives

Hungary is increasing control over the banking industry after Premier Viktor Orban’s government ordered savings cooperatives to be folded into a partially state-owned bank and said it would buy stakes in two lenders.

The administration will require savings cooperatives to be integrated into Takarekbank Zrt. and the state will acquire “an important ownership position” in cooperatives’ operations, according to a draft law posted on parliament’s website yesterday. The government will allocate 100 billion forint ($439 million) to overhaul the savings sector, government spokesman Andras Giro-Szasz said yesterday.

“It’s becoming ever more obvious that the government’s strategic goal is to have a larger part of the financial industry under state control and directly influence lending,” Attila Gyurcsik, a Budapest-based analyst at brokerage Concorde Securities Zrt., said in a phone interview.

Hungary, the most indebted eastern member of the European Union, is reversing earlier privatizations as Orban extends state control over strategic industries. Combining savings cooperatives together will aid the Cabinet’s drive to prop up lending, help the economy emerge from its recession and make them more competitive against commercial lenders, Gyurcsik said.

Parliament, where Orban’s ruling Fidesz party has a two-thirds majority, will vote on the bill this week, Antal Rogan, Fidesz parliamentary group leader said, according to Inforadio.

‘Unhealthy Situation’

With Hungary’s banking industry almost 90 percent controlled by foreign lenders, the government wants to lift local bank-industry ownership to at least 50 percent, Orban said on March 12.

“It’s an unhealthy situation that foreigners have such a high degree of ownership in Hungary’s banking system,” Orban said.

OTP Bank Nyrt., the country’s largest lender, competes with local units of Austria’s Erste Group AG and Raiffeisen Bank International AG, Italy’s UniCredit SpA and Intesa Sanpaolo SpA, Bayerische Landesbank of Germany, Belgium’s KBC Groep NV, and U.S.-based General Electric Capital Corp. and Citigroup Inc.

OTP shares have dropped 5.3 percent this month and were trading 1.4 percent stronger at 4,640 forint at 1:51 p.m. in Budapest. The Benchmark BUX index slid 4.2 percent in the same period.

The state holds a 39.28 percent stake in Takarekbank, which groups 104 savings cooperatives, after buying DZ Bank AG’s stake in the lender last year.

Limited Services

Savings cooperatives are typically rural financial service providers regulated to offer a more limited array of services than commercial banks. Their main focuses of activity are deposit collection and lending.

The institutions had a combined return on equity of 8.1 percent in 2012, compared with commercial banks at minus 8.1 percent, according to data from the financial market regulator.

Cooperatives, which have about 1.1 million clients in a country of 10 million, own about 40 percent of all bank branches countrywide.

The government also acquired 49 percent stakes in domestically owned Granit Bank Zrt. and Szechenyi Bank Zrt., according to separate statements on the financial market regulator’s website.

The state paid a combined 5.6 billion forint for the holdings and plans to increase the capital of the two lenders, news website Index reported yesterday.

To contact the reporter on this story: Edith Balazs in Budapest at ebalazs1@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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