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Austrian Banks Have $ 41.0bn Exposure in Hungary

Published: January 7, 2012; 11:25 · (Vindobona)

After another downgrade, a national bankruptcy of Hungary is not excluded anymore. Consequences for Austrian banks would not be foreseeable.

Austrian Banks Have $ 41.0bn Exposure in Hungary / Picture: © Vindobona.org

The U.S. rating agency Fitch has downgraded Hungary´s rating from “BBB-“ to “BB+”, which has only junk status. The agency justified its decision with the “further aggravation of the financial status and the growth forecasts”. Fitch published the third downgrade after Moody´s and S&P announced their downgrades at the end of December.

Austrian banks, above all Erste Group, Raiffeisen Bank International and VBAG, are highly engaged in Hungary. Erste Group´s market share amounts to 9%, Raiffeisen holds 7% and Bank Austria has a 5% market share. RBI´s Hungarian subsidiary is expected to record losses of € 320m in 2011. In the first three quarters of 2011, Erste Group´s local subsidiary registered losses of € 531.7m.

As a national bankruptcy is not excluded anymore, costs for credit default swaps are rising steadily. Interest rates for a 10-year government bond already reached 11.27%. In September, the interest rate for Hungarian government bonds stood at 7.0%. Usually, an interest rate beyond 9.0% is not controllable anymore.

As a result, massive concerns arise in Austria. Domestic banks have an exposure of $ 41bn (€ 33.21bn) – no other country has made larger investments in Hungary. Austria is followed by Italy ($ 23.39bn) and Germany ($ 21.38bn).

Hence, a national bankruptcy would have dramatic consequences for Austrian banks. Currently, domestic banks hope that the Hungarian government reaches an agreement with the EU and the IMF. At the beginning of December, Prime Minister Orban was said to let the negotiations fail. Negotiations over a loan of € 20bn took place. Already in 2008, the IMF granted € 20bn to Hungary in order to prevent a national bankruptcy.

In spite of heavy protests, Orban refuses to take back the abolishment of the Hungarian Central Bank´s indepence. The problem, which would only be a disagreement between Hungary and the EU, will be solved in line with EU standards, Orban said.

Now, Orban seems to be ready to reach a comprise: “The Hungarian government has done everything in order to begin and close negotiations with the EU and the IMF as soon as possible.” The Minister Tamas Fellegi, who negotiated with IMF, said that the government has recognized the seriousness of the situation.

The Commission of the EU, however, is not busy at all. First, the Commission wants to examine, if the abolished independence of the Hungarian Central Bank violates EU law. According to the Hungarian magazine „Figyelo“, Hungary also plans to have talks with the German, Austrian and French government in order retain further financial aids.