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European Commission suspects state aid to FHB Bank illegal

The European Commission on Thursday said it “has doubts” that state aid for Hungarian bank FHB granted during the crisis was not used for the bank's expansion at the expense of competitors after a preliminary assessment of a restructuring plan for the bank.

FHB benefited from a loan of about HUF 120 billion and a capital injection of HUF 30 billion in March 2009. Hungary took the view that the measures fell under national liquidity and recapitalization schemes to support the banking sector during the crisis. As the schemes had already been approved by the Commission, Hungary did not notify Brussels of the measures.

“At this stage, the Commission has doubts whether the aid was properly remunerated and not used for the expansion of the bank at the expense of its competitors,” the Commission said.

“In this case, the remuneration paid by the bank for the capital provided by the state does not comply with the EU rules and the necessary safeguards to avoid unnecessary distortions of competition also do not seem to have been taken care of,” said Commission Vice-President in charge of Competition policy Joaquin Almunia.

The Commission said it considers the capital injection was not granted in line with the criteria set in the guarantee and recapitalization scheme "and thus constitutes illegal aid" in the sense that it should have been cleared before being granted. The injection notably exceeds the limit of 2% of risk-weighted assets for recapitalizations that do not require notification, it added.

The Commission said it opened an in-depth investigation of the proposed restructuring based on a plan submitted by the government in June 2010. The opening of an in-depth investigation gives third parties the possibility to comment and does not prejudge the final outcome, it added. (MTI-Econews)