Drastic spending cuts, tax cuts for companies and speedy euro adoption are needed for Hungary to climb out of the global financial crisis and regain investor confidence, the head of the country’s biggest bank said.
Sándor Csányi, CEO of OTP Bank, said that the forint’s sharp fall last week was fundamentally unjustified and the government and the central bank must protect the currency from further drops. “Rapid euro adoption is the only way (to regain investor confidence),” Csányi told state television MTV on Sunday. “I think Hungarian politicians need to come together and seek an exception from EU rules to adopt the currency as soon as possible.”
Hungary’s currency and stocks were one of the hardest hit in the 27 nation European Union over the past two weeks on concern about the country’s high debt level, heavy reliance on external financing and the proliferation of household foreign currency loans. “The forint must be protected, if necessary, through further rate hikes or intervention,” said Csányi, who is also one of Hungary’s richest men. “I think that the forint’s realistic value is around 270 (but) for the next few months, I could even accept 280 as that would really help the economy and exporting firms,” Csányi said.
The forint fell to an all time low of 285 versus the euro on Thursday before recovering to close the week around 280, nearly 11% weaker since the start of the year. The forint is among the worst performing emerging market currencies this year. To protect the currency, the central bank last week raised its benchmark interest rate to 11.5% from 8.5%.
Analysts say Hungary will adopt the euro around 2014.
Csányi added that to stabilize the forint and meet euro adoption criteria, the country needs to drastically reduce spending and cut taxes for corporations while reducing the budget deficit to a range of 0 to 1% of GDP from current plans for a 3.4% deficit this year.
OTP BANK SHARES
Csányi said that there is no sign anybody is trying to buy up the bank’s shares, which have plunged sharply in the past weeks. Nobody has announced a change in stakes exceeding 1% of registered capital Csányi said. Though OTP Bank’s shares are cheap -- its price-to-earnings ratio is a very low 3 -- the bank’s articles of incorporation make a takeover difficult, he added. Csányi reiterated that OTP Bank’s capital position is stable and it has enough liquidity to meet all of its foreign currency obligations until the end of 2009 without borrowing any euros. The bank has money to lend, “The but less than earlier,” he added. OTP Bank will continue to offer clients foreign currency denominated products, though the lending conditions for these products is being tightened, Csányi said. The bank has cut the ratio of its mortgage loans to collateral to under 60% from 80-85%, he said. OTP Bank is raising its lending rates. Deposit rates will also rise eventually because of increasing competition on the banking market to attract deposits. (Reuters, MTI-Econews)