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Erste Group Bank AG threatened to withdraw from a deal offering to sell a stake in its Hungarian unit, which would derail Prime Minister Viktor Orban’s bid to smooth ties with the banking industry and help lift the country’s credit rating to investment level.

Policy makers considering the imposition of increased lending as a condition for tax cuts puts Hungary on course to breach the agreement signed with the Austrian lender in February, Chief Executive Officer Andreas Treichl said in a conference call Friday. A resolution is also needed in the dispute over compensation to clients of failed brokerage Quaestor Zrt., otherwise Erste will cancel the offer to sell the 15 percent stake in its unit to the government, he said.

“We made it very clear to the government that if that case is not solved amicably between the government and the banks, there will be no participation,” Treichl said of the compensation dispute.

Hungary approved compensation of up 100,000 euros to Quaestor clients in April and forced banks to foot the bill. Erste says that may violate the deal signed with Hungary and the European Bank for Reconstruction and Development, under which Orban promised to lower Europe’s highest bank tax and to refrain from raising the burden on lenders in other ways. The government, which wants to restore the country’s investment-grade status, has said the banking deal will help shed the junk rating.

Local banks challenged the compensation law at the Constitutional Court, claiming the bill was unfair.

Erste competes with Hungary’s largest local lender OTP Bank Nyrt. and units of foreign banks including UniCredit SpA and KBC Groep NV.

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