Sberbank Hungary Falls With Austrian Parent on Sanctions Against Russia

The demise of the Vienna-based Sberbank Europe AG came at a “lightning speed,” the European Union’s Single Resolution Board (SRB), the authority responsible for the restructuring of failing banks, said. Effectively, the troubled Austrian parent dragged the Hungarian unit down with it.

Sberbank Europe admitted in late February that it had “faced an exceptional outflow of funds and a number of safety concerns regarding its employees and offices,” the Financial Times (FT) reported. The Austrian parent added that it was unable to provide liquidity to its European operations as Russia’s central bank had already been prohibited from moving funds abroad under the Western sanction regime.

On March 1, the Austrian Financial Supervisory Authority (FMA) prohibited further operations.

“In light of the current situation, Sberbank has taken the decision to withdraw from the European market,” a statement by Russia’s biggest lender said, according to FT’s report on March 2.

That same day, it was announced that Sberbank Europe Group was insolvent; the Slovenian subsidiary was sold to NLB Group, while the Croatian subsidiary was sold to Hrvatska poštanska banka.

The saga for the Hungarian operation started on Feb. 28, when the National Bank of Hungary (MNB) ordered a two-day bank holiday for Sberbank Magyarország after the SRB warned the lender had been experiencing “serious liquidity problems” as a result of the Russian war in Ukraine. A supervisory commissioner was also appointed that same day to take over bank management from the board of directors to ensure proper functioning.

The Hungarian central bank cited the SRB when justifying its local measures. The SRB said that Sberbank Europe was probably going to be “unable to meet its debts or other obligations as they fall due in the near future, and as a result, it is failing or likely to fail,” the Hungarian state-owned news agency MTI reported.

Reviewing the Situation

The Hungarian financial watchdog said that it would “review the operation and condition of the Hungarian subsidiary in the current situation and make the most appropriate decision in terms of the stability of the financial markets and customer interests as soon as possible.”

At the time, Sberbank Magyarország Zrt. clients were told they would be able to initiate bank card transactions and had been promised they would be able to receive account transfers, but the initiation of account transactions was frozen.

The MNB, which is the financial markets watchdog in Hungary as well as the central bank, assured the public that Sberbank Magyarország’s deposits were secured by the Hungarian National Deposit Insurance Fund (OBA). The Hungarian central bank added that the difficulties surrounding Sberbank had not affected any other members of the domestic financial system.

By the end of the two-day bank holiday, the central bank was limiting repayable funds by Sberbank Magyarország to HUF 7 million per customer, which would start as of March 2 for 30 days to maintain the safe operation of the troubled financial institution. The MNB said this would allow the Hungarian unit to comply with legal liquidity and capital positions provisions.

However, Sberbank Magyarország’s lending license was withdrawn on March 1, and its winding up was ordered. The financial watchdog cited international sanctions against Russia as well as “serious liquidity and capital situation” for its decision, which came after the SRB ordered Sberbank Europe AG to be wound up.

Hungary’s Prime Minister Viktor Orbán told state-owned Kossuth Rádió in his usual Friday interview that the shutting down of Sberbank in Hungary has been the first hit to the local economy caused by the European Union’s sanctions against Russia. Hungary also supported these sanctions.

Double-edged Weapon

“Sanctions have a price as it is a double-edged weapon, and we will pay this price in the short term,” Orbán said in the interview, according to international news wire Reuters. He added that his government had to work to mitigate the direct damage from the measures against Russia. “This is only the beginning of this crisis,” he warned, according to Reuters.

Hungary’s Minister of Foreign Affairs and Trade Péter Szijjártó tagged Sberbank as a “victim” of the EU’s sanctions policy, online news portal Euractiv reported, based on reporting by its partner Telex. “Unfortunately, we have the first victim of the Brussels’ sanctions policy; this is the Sberbank in Hungary and Austria,” the foreign minister was quoted as saying in a press conference.

Nevertheless, the local market should be able to shoulder the exit of the Russian-owned bank. MNB deputy governor Csaba Kandrács indicated that the Hungarian subsidiary had a share of only around 1% of the local market. Therefore, its liquidation will not cause stability problems in the Hungarian banking system, online news daily index.hu reported.

Additionally, clients without high deposits at Sberbank Europe were unlikely to suffer considerable losses, as retail depositors are protected up to EUR 100,000, Euractiv added.

In the meantime, the market responded to Sberbank’s demise as expected. With Sberbank customers re-entering the market searching for banking services, competing financial institutions are offering cash incentives for new customers. According to bank360.hu, bank services comparison website, alert and mindful customers opening residential bank accounts these days can receive up to HUF 80,000 in incentives if they choose their new bank carefully.

At the end of 2020, Sberbank Magyarország’s total assets stood at HUF 511 billion and client deposits almost reached HUF 355 bln, according to public records.

Debts Must be Paid

Sberbank Hungary’s liquidator said that those who hold debts with the bank must keep paying their installments following the usual deadlines included in their contracts. The recurring payments must be made via bank transfer to a selection of bank accounts (depending on the currency of the debt being paid). In the reference section, customers have to include the identification number of the loan contract.

Sberbank Europe AG

Before the collapse, the group had more than 780,000 retail and corporate customers in eight countries in Central and Eastern Europe (Austria, Bosnia and Herzegovina, Croatia, the Czech Republic, Germany, Hungary, Serbia, and Slovenia), served by a staff of almost 4,000. It was wholly owned by PJSC Sberbank, Russia’s biggest bank. The principal shareholder of the Russian parent is the country’s Ministry of Finance, which has 50% of the bank’s authorized capital plus one voting share. Domestic and international investors hold the remaining 50%.

This article was first published in the Budapest Business Journal print issue of March 11, 2022.