Hungary to Announce Banking Policy Overhaul, Erste Bank Says

Hungary plans to announce on Monday an overhaul of its punitive policies on banks, Erste Group Bank AG said, adding that if implemented it would allow Prime Minister Viktor Orban’s government to gain a share in its local unit.

Erste would let Hungary and the European Bank for Reconstruction and Development acquire stakes of as much as 15 percent each in its Hungarian unit via capital injections in exchange for the legislative amendments, Michael Mauritz, a Vienna-based spokesman said by phone.

The policy changes would “put the Hungarian banking sector on a new footing,” Mauritz said, adding that Erste’s offer was a “symbolic gesture.” Orban, Erste Chief Executive Officer Andreas Treichl and EBRD President Suma Chakrabarti will hold a press conference at 4 p.m. in Budapest, according to a government invitation.

Orban levied Europe’s highest bank tax on lenders in 2010 and forced them to reimburse borrowers 1 trillion forint ($3.7 billion), mostly for their role in spreading mortgages denominated in foreign-currencies, mostly in Swiss francs. The government is forcing lenders to convert these loans to forint this year after many borrowers fell into arrears. Hungary may cut the “extraordinarily high” bank-tax level as early as in 2016, Orban said in an interview in December.

Zoltan Kovacs, a spokesman for the Hungarian government, didn’t immediately respond to a request for comment.

The cabinet’s measures against banks contributed to the country’s sovereign credit grade downgrade to junk by 2012 at all three major rating companies. The government has said it expects to regain investment grade this year.

Unprofitable Banks

Hungary’s banking industry is expected to be profitable this year for the first time since 2010 when excluding capital injections, UniCredit SpA forecast in a Jan. 21 report. Except for Hungary’s biggest bank, OTP Bank Nyrt., all major lenders were foreign-owned until last year, with Erste, KBC Groep NV and Raiffeisen Bank International among the biggest.

Hungary’s government purchasing a stake in Erste would fit into Orban’s drive to boost local ownership to more than half of the banking industry. The government bought Bayerische Landesbank’s unprofitable MKB Bank Zrt. unit and agreed to acquire GE Capital’s Budapest Bank in 2014, arguing that they would be more inclined to lend if they were under local control.

Erste would be ready to boost lending by 500 million euros ($566 million), according to its offer, Mauritz said, adding that details have yet to be agreed.

The planned deal was first reported by Portfolio news website on Monday.

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