Hungarian Lending, Investment Declines Curb Economy, Csanyi Says

Declining corporate lending and Hungary’s weak appeal to foreign investors will weigh on the economy and slow growth in the coming years, the chairman of the country’s biggest bank said.

Unpredictability in economic policy, taxes on specific industries, and the highest rate of income redistribution by the state in central and eastern Europe are undermining Hungary’s attractiveness as a place to invest, said Sandor Csanyi, the head of OTP Bank, said at a conference in the eastern Hungarian city of Miskolc on Thursday.

“All countries in the region register capital inflows in their corporate sector,” he said. “It’s only in Hungary that the capital is leaving.”

Csanyi and other Hungarian business executives have criticized Prime Minister Viktor Orban’s government since it first took power in 2010 for policies including imposing Europe’s highest bank tax and changing the constitution to give the administration more sway over courts, the central bank and other institutions.

Corporate lending will drop this year before bottoming out in 2016, and the volume of credit to companies will only reach an adequate level relative to the size of the economy in 2020, Csanyi said.

The trajectory described by Csanyi goes contrary to efforts of the central bank, which has lowered borrowing costs to a record 1.35 percent and introduced a funding credit program in an effort to boost lending. Increased capital needs at banks, more stringent liquidity regulations, and weak growth in credit-intensive economic industries are all squeezing lending, according to Csanyi.

Hungary’s economic growth slowed to an annual 2.7 percent in the second quarter, compared with a 3.5 percent gain in the previous three months, on a drop in agricultural output.

The state’s intervention in the savings-cooperative industry violates European Union competition laws, and OTP is ready to challenge the regulations in courts, Csanyi said.

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