Prime Minister Viktor Orban plans to curb foreign banks’ presence in Hungary, risking a deepening clash with the European Union and lifting the cost of insuring the country’s bonds against default to a five-month high.
Hungary seeks to lift local bank-industry ownership to at least 50 percent, Orban said today in Budapest. Intesa Sanpaolo SpA may cut its presence, CEO Enrico Tommaso Cuchicani said today, calling Hungary a “nightmare,” while Danske Bank A/S said the move is “in effect threatening to nationalize” part of the industry. Erste Group Bank AG, KBC Groep NV, Raiffeisen Bank International AG, UniCredit SpA, Bayerische Landesbank and Citigroup Inc. are among those also active in Hungary.
The proposal threatens to widen the rift between the EU’s most-indebted eastern state and the rest of the 27-nation bloc over changes to the constitution Hungarian lawmakers passed yesterday that limit court independence. Investors have sold the forint this month on concern the central bank will lower interest rates more after Orban appointed Gyorgy Matolcsy to lead the institution in a push to overhaul policy making amid a deepening recession.
“If the Hungarian government and the new central bank leadership continue to pursue such a highly unorthodox policy, there is a serious risk of a major market meltdown,” analysts at Danske Bank led by Lars Christensen said in the note. “We find it difficult to see how the Hungarian government will fund itself on international capital markets if the government and the central bank don’t move very soon to calm market fears.”
The European Commission would seek to force Hungary to modify the constitutional amendments if a review shows that they violate European norms and values, Olivier Bailly, a spokesman for the EU’s executive, told reporters today in Brussels.
“It’s an unhealthy situation that foreigners have such a high degree of ownership in Hungary’s banking system,” Orban said today. “While respecting international treaties and relevant economic norms, we must strive to increase the Hungarian ownership ratio within the Hungarian banking system. The government has a target number -- we would like at least 50 percent of the Hungarian banking system to be in Hungarian hands.”
The forint weakened the most in almost three months today, sliding 1.3 percent to 305.89 per euro by 6:09 p.m. in Budapest. The yield on Hungary’s 10-year bonds denominated in dollars rose seven basis points, or 0.07 percentage point, to 5.722 percent.
Worsening perceptions of creditworthiness lifted the cost of credit default swaps protecting Hungary’s debt by 21 basis points to 341, the biggest jump in 14 months and the highest level in five months. The swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should an issuer fail to adhere to its debt agreements.
The “contentious changes to the constitution overshadow relations between the country and Germany and the EU,” the German government said in a statement today.
Budapest-based OTP Bank Nyrt., Hungary’s biggest lender, competes with local units of Austria’s Erste and Raiffeisen, Italy’s UniCredit and Intesa, Bayerische Landesbank of Germany, Belgium’s KBC, and U.S.-based General Electric and Citigroup. Hungary’s state-owned development bank MFB last year bought a stake in Takarekbank, a savings bank, from Germany’s DZ Bank AG.
The government may use Takarekbank, a network of savings cooperatives, the post office and other state organizations to build a network which can help ease the country’s funding shortage “on a national level,” Orban said.
Hungarian stocks fell, led by a 2.1 percent drop in OTP. Mortgage provider FHB Jelzalogbank Nyrt. slid 1.2 percent to its lowest close this year.
“Orban wants to force foreign banks out of the country, but this is a democracy and free market, which means it is not acceptable,” John Milton, director of Ipopema Securities SA’s unit in Budapest, wrote in e-mailed comments today.