• New measures will be announced in the middle of November
  • Steps may be `unconventional' and include positive incentives

Hungary’s central bank will introduce new measures to boost lending after free funding and a promise to reduce of one of the highest bank taxes in Europe failed to channel more credit to companies based in the eastern European Union member.

The new plan, which may include “unconventional” steps, will be announced in mid-November, National Bank of Hungary Vice President Marton Nagy told reporters in Vienna on Tuesday. The measures come before the bank phases out its Funding for Growth program, which provides free funds to commercial banks that lend at no more than 2.5 percent interest.

Prime Minister Viktor Orban’s government is trying to boost lending to avert an economic slowdown as EU development funding, the main source of public investment in Hungary, drops off next year. In February it agreed to ease banks’ tax burden to nurture credit growth after five-years of punishing levies.

“The biggest challenge is how can we get the banks to start to lend,” Nagy said. The central bank will “try to find some tools, positive incentives, for banks to start to lend on a market basis.”

Hungarian corporate lending
Hungarian corporate lending

The forint weakened 0.5 percent to 311.55 per euro by 1:02 p.m. in Budapest, leading declines among the EU’s eastern members. OTP Bank Nyrt., Hungary’s largest lender, fell 0.4 percent to 5,730 forint, retreating from the highest close in two months on Monday.

In addition to any new central-bank tools, the government should consider tying tax cuts to lending metrics, Nagy said.

“The government committed to decrease the bank levy,” Nagy said. “The central bank always argued that we want to see a conditional decrease. The banks should perform some credit growth as a condition in the corporate sector.”

OTP Bank Nyrt., Hungary’s largest bank, competes mostly with foreign-owned banks, including Erste Group Bank AG, Raiffeisen Bank International AG, UniCredit SpA, Intesa SanPaolo SpA and KBC Groep NV.

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