Bad bank expected to yield profit

Sustainability

Cleaning the corporate lending portfolios of banks, which will be the task of a new "bad bank" set up by the governement, could actually yield profit for the state, Hungarian daily Magyar Nemzet said at the weekend.

The "bad bank" is expected to start operating in the fall. It will isolate lenders’ non performing loans, and will primarily buy commercial real estate loans and the foreclosed real estate behind them. About HUF 510 bln of banks' commercial real estate portfolio is non-performing, but some HUF 300 bln more is restructured and "masks a large number of problematic deals", according to National Bank of Hungary (MNB) managing director Márton Nagy, interviewed by Reuters on July 24.

International practice shows that if the debt is taken over at about 40% of its value, it is possible to operate the asset management agency at a profit. Magyar Nemzet mentions Ireland as an example, where an asset management agency was established in 2009 for corporate loans, and has been operating at a profit ever since. The Irish bad bank could even unload its bad loans earlier than expected.

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