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Hungary Transaction Tax Would Risk Saver Flight, Citigroup Says

April 12 (Bloomberg) -- Hungary’s proposed financial transaction tax would weaken the banking sector because it may push savers to withdraw their funds from local lenders, Citigroup Inc. said today.

News website Origo reported yesterday that the government is planning to introduce a levy on transactions such as bank transfers and cash withdrawals from next year as part of measures to narrow the budget deficit.

“A transaction-based tax may weaken the Hungarian banking sector’s capital position further by leading to a flight from liquid private sector savings,” Eszter Gargyan, a Budapest-based economist at the bank, wrote in a research report today.

The Economy Ministry won’t comment on Origo’s report on the tax “pending a government decision” on the matter, the ministry said in an e-mailed response to questions from Bloomberg yesterday.

Cutting ministries’ spending, another part of the budget measures, “without restructuring suggest high implementation risks,” Citigroup’s Gargyan said.

“The above factors, in our view, indicate that Hungary-specific news may be disappointing in the coming weeks, delivering an underperformance in local assets,” Gargyan added.

OTP Bank Nyrt., Hungary’s largest lender, rose 1.1 percent to 3,640 forint by 9:31 a.m. in Budapest, rebounding from the lowest close since Jan. 18 yesterday. The forint was little changed at 298.04 per euro.

To contact the reporter on this story: Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net

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