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Citibank remains cautious about 2011

US-based Citigroup’s Hungarian bank is worried about internal demand in Hungary and does not see further changes to the base rate.

The Hungarian branch of US-based Citigroup (directly owned by Citibank Europe Plc) has closed a profitable year even after taxes, Batara Sianturi, Citi Country Officer for Hungary says. “2011 will be a challenging year in Hungary, but we are committed to the country,” he stated at a press conference organized to celebrate the bank’s 25th year in Hungary.

Multinationals are mostly back on the growth track with export demand rising as Germany recovers, but Sianturi sees Hungary’s double-digit unemployment as worrying for its consumer business of 300,000 clients in 2011. Citi expects a 10% unemployment rate this year after a 10.8% rate in 2010. “This is not good for lending, not good for delinquency. Unemployment is not shrinking as fast as expected,” he said, “We remain cautious.” (One of Citi's managers told the Budapest Business Journal that the Hungarian bank's worst case scenario for 2011 is no growth.)

Credit cards and life insurance

Citibank’s credit card portfolio, which includes about 200,000 cards has remained very profitable despite a relatively bad market, Sianturi said, and is one of the drivers of Citibank Hungary. “Our prudent lending strategy has paid off,” he said, “we do not have a problem with delinquency.” According to Sianturi, Citibank Hungary usually has a 30% return on equity and it has a loan-to-deposit ratio of about 50%.

After being the first in Hungary to introduce credit cards in 1985 and a zero fee bank account in 2008, Citibank will continue to introduce innovative products in 2011 by launching a free life insurance to accompany zero fee and its private banking accounts. In 2011, Citi also hopes to become the market leader in Hungary’s mass affluent client sector, which it estimates is comprised of about 150,000 people.

Growth and surplus

According to Citi’s prognosis, Hungary’s economy will definitely restart its engines this year: nominal GDP will rise by $6 billion to reach $139 billion in 2011, which amounts to a real GDP growth of 2.7% (compared to -6.7% in 2009 and 1.3% in 2010). Still, GDP per capita, the indicator of living standard, will rise by almost twice as much as GDP growth to $13,961 per capita.

Sianturi does not expect interest rates set by the central bank to change as pressure on inflation eases: Citi sees a 3.7% year-on-year inflation in 2011 and expects the base rate to stay at 6%. The forint is expected to weaken further against the euro to HUF282/EUR.

One very surprising number in Citi’s macroeconomic prognosis for Hungary is a 5.5% GDP-based central budget surplus. "The budget balance is likely to record surplus this year because of the pension transfer," the bank's analyst commented.

Bank tax

“We retain our three concerns about the bank tax,” Sianturi told the Budapest Business Journal, “we are worried about its discriminatory nature, its size and its duration.” Citibank Hungary was integrated into Ireland-based Citibank Europe plc in 2009 and is now legally a branch office of the Irish company in Hungary.