Foreign-owned firms reinvest more earnings in Hungary, says MNB

In Hungary

Foreign-owned Hungarian companies reinvest a higher portion of their profits than the rate observed in the other Visegrád countries, the National Bank of Hungary (MNB) said in a special analysis forming part of the bankʼs quarterly report on the balance of payments, Hungarian news agency MTI reported Monday.

In 2015, the profits of foreign-owned companies rose to almost 7% of GDP, exceeding pre-crisis levels; however, while in earlier years the major proportion of profit was transferred to home countries in the form of dividends, in recent years the majority of income has been reinvested in Hungary, the MNB said. The increase in profits reflects the improving profitability of non-financial companies, the central bank added. 

Growth in the profits of foreign-owned companies was observed in several sectors, with especially high increases in manufacturing, vehicle production and pharmaceuticals. In the services sector, the key drivers included telecommunications, business management consultancy and other business services. 

The lower profits realized by Hungarian-owned companies operating abroad also contributed to the higher deficit in the net income balance within the balance of payments, the MNB said. The lower profitability of Hungarian-owned firms abroad may also be attributable to geopolitical tensions in neighboring countries and to the decline of the Russian economy in 2015, the bank added. 

In 2015, foreign companies operating in Hungary reinvested more than half of their profits, which is an extraordinarily high proportion among the Visegrád countries, the MNB noted. In contrast with other countries in the region, the share of dividend and interest payments in Hungary gradually declined between 2010 and 2014, while reinvested earnings as a percentage of FDI rose to the highest level in the region. In 2015, the profits of foreign corporations increased in all countries of the region, but this was accompanied by a rise in reinvested earnings only in Hungary and Slovakia, the bank added. 

In 2015 in Hungary, profit-proportionate dividend payments remained at the low level seen in the previous year, still far short of the regional level. Among the Visegrád countries, the ratio of reinvested earnings exceeds the dividend payment ratio only in Hungary, which may have a positive impact on the country’s growth prospects via higher foreign direct investment, the MNB added.

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