From Fintech to Solar Financing: What Moves the Banking Sector in 2018?


In this article, we try to present the most important trends to follow in 2018 in the finance market. We certainly do not have a crystal ball, our predictions are mostly based on logical conclusions of the past years’ experience and market knowledge gained from our clients, including all the major Hungarian banks and many blue-chip investors.

Erika Papp, Partner, Head of Banking and International Finance, CMS Budapest and Sándor Kovács, Associate, CMS Budapest


Starting with what will not come, we need to mention fintech. Whilst advanced technology-based financing methods were in the focus of attention last year, and some already ring the bell over the banking sector as we currently know, in our view, 2018 will not be the year of the Hungarian fintech revolution. The main reason is the absence of a legal background: whilst the London market is full of ICOs and crowdfunding projects, the lack of a solid legal framework will discourage not only investors, but also potential customers. What seems to be more realistic is that more traditional banks will take a step forward and use new technology, for instance blockchain methods in their internal processes.

Real Estate Market

We predict that 2018 will be the year when REITs finally find their place on the market. Alongside existing and popular investment fund structures, this year we shall see new projects using REITs (and related companies) instead of simple SPVs. Such choice of developers will definitely be inspired by tax benefits, but some of them will also be made in course of pre-structuring IPOs.

Last years’ rise in the number of retail developments might not continue due to the uncertainty around the preferential VAT rate. The average 1.5-2 years’ timeframe for such projects indicates that if the preferential VAT is over by the end of 2019, a project started after Q2 of 2018 bears a higher risk. Thus, given the lack of a clear message from the government in this respect, we expect fewer new residential projects to be started in the second half of the year.

Office building market still seems to be stable, new projects will be ongoing. The 6-6.5 % yield may still be attractive to foreign investors, and many domestic players sit on too much cash; so, despite of relatively high prices, we expect new acquisitions as well.

Portfolio Transfers

In the last few years, we have represented both sellers and buyers in respect of several loan portfolio transfers. Such transactions were due to the clarification of the banks’ portfolios, selling NPLs. The purge of banking balance sheets is in an advanced phase, although it is not yet over. On the other hand, due to the decreasing default rates, performing retail (and to a certain extent corporate) portfolios have become attractive to many investors. Therefore, this year we expect more PL portfolios to be marketed, even bearing in mind that transferring such portfolios is a much more complex exercise that requires careful structuring.

Solar Projects

It is not bold to predict that this year will bring massive numbers of solar developments. Calculating even with only one-third of existing “KÁT” licenses, we see that many of the projects are yet to be realized. The available double-digit equity return is very attractive for both domestic and foreign investors, and such enthusiasm does not seem to be calmed by changing legislation risk. Nevertheless, it is to be emphasized that many banks are already full of credit requests, so they could be very selective with their clients.

SPVs are highly preferred as borrowers in order to avoid performing a full scope due diligence. Also, the location of the project may be even more important than the number of sunny hours; a well-positioned network access point may save a lot of extra cost. For this reason, prudent banks will prefer industrial parks, or at least brown field investments when deciding on a project.

Having in mind the relatively long-term of such loans comparing to the short-term sources allocated to them, we expect that increased cost and market disruption clauses will attract a lot of attention during negotiations.

Given the license structure, the high number of obligors may be challenging when structuring or contracting such projects. Our office has elaborated the necessary template agreements, which will save time and costs on both the borrowers’ and lenders’ side.

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