CEO: MKB Bank sale unaffected by commitments in EC resolution

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The commitments set forth in a December 16 resolution by the European Commission (EC) will not affect the sale of state-owned MKB Bank, which will take place as planned by the end of June, MKB CEO Ádám Balog told Hungarian news agency MTI yesterday after the EC published its resolution to fully clear the bailout of the bank.

On December 16, the EC said in a press release that it “concluded that the Hungarian plans to grant state aid for the restructuring of Hungarian bank Magyar Kereskedelmi Bank Zrt. (MKB) are in line with EU state aid rules ”.

The state acquired MKB from BayernLB in 2014 and plans to re-sell this year after a restructuring, begun by the National Bank of Hungary (MNB) that took over the exercise of ownership rights before the end of 2014. 

Balog said that several commitments such as the sale of MKB-Euroleasing had already occurred or the selloff of the commercial real estate portfolio and the development of the risk management system, are underway, or would have been carried out anyway, from purely a business perspective, such as cost-cutting.

All banks undergoing a bailout process must make commitments in exchange for state aid to ensure that they do not acquire a competitive edge as a result of state aid, and that competition remains intact in the Hungarian banking sector, the CEO said. 

Meeting these commitments is also in the interest of banks as it helps them become profitable as quickly as possible. The better the bankʼs position, the more attractive it is to investors, Balog noted. 

The EC resolution detailed and assessed the governmentʼs bailout plan under which the bankʼs restructuring would last until the end of 2019. MKB could become viable under a base scenario in 2016 and under a stress scenario in 2018 as part of the plan.

The resolution assessed specific commitments made by the Hungarian authorities as part of the bailout plan. These include halting commercial property lending during the restructuring period, a ban on retail FX lending and limiting corporate FX lending to cases where there is a natural hedge, various numeral cost-reduction targets, including a reduction of total branch numbers from 79 in 2014 to 70-76 by the end of 2017. The commitments include the specifics of a new risk strategy, to be introduced from January 2016, the limitation of investment to investment-grade European Economic Area ("EEA") sovereign securities or those that are EEA state-guaranteed or eligible as collateral for the MNB.

In further commitments, MKB will not pay any dividend for the fiscal years until the end of 2017, and it will be introduced to the regulated capital market after at least two profitable business years but by the end of the restructuring period at the latest.

Commitments to limit distortions of competition include a reduction of the groupʼs balance sheet total as well as risk-weighted assets with target ranges specified, a ban on acquisitions, a cap on marketing expenses and a ban on advertising the state aid or ownership as well as on aggressive commercial practices.

The Hungarian authorities also committed to re-notify any change to the restructuring plan and in particular changes that influence the viability, burden-sharing and competition analysis performed by the Commission in this Decision approving the restructuring plan.

The Hungarian authorities also undertook to appoint a monitoring trustee who will provide half-yearly reports to the Commission within 30 days after the end of each six-month period until the end of the restructuring period, the resolution shows.

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