Hungary: High Losses for Banks

Published: January 4, 2012; 17:36 · (Vindobona)

According to the Hungarian banking association, costs for the coerced conversion of foreign currency loans reach about € 952m.

Hungary: High Losses for Banks / Picture: ©

In Hungary, where Austrian banks are highly engaged, the controversial foreign currency loan conversion causes massive costs for the banking industry. For Austrian banks, not Greece, but Hungary is the biggest problem, Herbert Stepic (CEO of Raiffeisen Bank International) says.

The local banking association numbers minimum costs to € 952m. However, further costs of € 1.5bn are feared. No other country in the CESEE region took on as much foreign currency loans as Hungary. In 2011, about 20% of Hungarian loan takers accepted the conversion offer and converted Swiss-Franc loans in Forint-loans at favorable conditions. The banks were forced by the government to offer lower exchange rates.

By mid-December, the financial institutions and the Hungarian government agreed on a solution. According to that, also customers without repayment problems can convert their loans. As a result, further costs of € 1.58bn are feared. On the contrary, the government is willing to reduce taxes for banks. But not only private clients have difficulties. Also Hungarian municipalities claim that a third of their debt must be cut. All in all, foreign currency debts of Hungarian municipalities total  € 1.5bn. If banks would grant a haircut, total costs would reach € 3.0bn.

The Austrian banks like Erste Bank, Bank Austria and Raiffeisen do not comment the estimations of the Hungarian banking association. “We are not able to number the exact costs.”, RBI stated. Austria´s banks have a market share of 20% in Hungary. Erste Bank´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.