The Hungarian government should quickly scrap or sharply reduce the bank levy and wind up an early foreign currency-denominated mortgage repayment scheme to avoid a credit crunch, Hungarian bank chiefs said at a National Bank of Hungary (MNB) conference on Thursday.
Hungary’s biggest problem is confidence, thus it has to strike a sensible agreement with the IMF, said MKB chairman-CEO and former Hungarian Banking Association head Tamas Erdei.
Mr Erdei said achieving a 100% loan-to-deposit ratio - compared to a 130% ratio at present - as proposed by MNB governor Andras Simor would cause bank assets to contract severely, resulting in a 10% decline in GDP, Mr Erdei said. Regional banking groups with group-level treasury management make it difficult to distinguish between savings in different countries anyway, he added.
Foreign financing of lending and the import of capital is common for any country undergoing convergence, such as Hungary, he said. Hungarian banks have about €15bn in external refinancing, he added.
Fiscal measures have increased the vulnerability of Hungary’s banking system and made it even harder to expect them to increase lending activity, Mr Erdei said. Almost all Hungarian banks - of which two-thirds are foreign-owned, by assets - require additional capital or write-offs as a result of the bank levy and the early repayment scheme, he added.
The bank levy should be withdrawn or sharply reduced immediately, and the government should agree with the banks on how to compensate them for the losses related to the early repayment scheme, he said.
The government repayment scheme, launched at the end of September, allows full early repayment of foreign currency-denominated mortgages at discounted exchange rates and leaves banks to cover the difference with market rates. Borrowers must apply to join the programme by then end of 2011 and complete repayment within 60 days from application.
Hungarian banks as a whole lose almost HUF 2bn a day on the early repayment scheme and this will go on for another three months, which is difficult to explain to shareholders, said Erste Bank Hungary chairman-CEO Radovan Jelasity.
It remains to be seen whether the foreign parent banks would again promise to maintain their level of funding to Hungarian units as they did in the Vienna Initiative three years ago, he said. The situation was different at the time, as Hungary had an IMF agreement, he added.
FHB Jelzalogbank CEO Laszlo Harmati said that in addition to quick ends to the bank levy and the early repayment scheme, introducing regulations requiring wages to be transferred onto bank accounts and injecting more capital into guarantors could support an increase in savings. He also urged improvements in liquidation procedures and other measures to make it easier for bank to free up collateral.
There is no quick solution to dealing with Hungary’s large foreign exchange stocks, be it high state debt or foreign exchange loans, and banks must learn to live with these problems, said MNB deputy governor Julia Kiraly.
The bankers noted that, contrary to popular opinion, SME lending is limited rather by a lack of demand than by an unwillingness to lend.
When asked to make a projection for 2012, Mr Harmati said corporate lending by FHB rose already in 2011, and the bank targets 15% growth in the segment next year.
Mr Erdei said keeping lending at current levels would be an achievement, although performance could vary greatly by segments.
Mr Jelasity said there would be lending, but it would be very selective.