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Tax shakes up banks

Ever since the government introduced the extraordinary tax on the financial sector, the question has been whether these extra costs will be passed on to the customers. While banks claim that they will not be, clients and some civil groups are saying that they will, and in fact already have been.

In early February, the National Federation of Associations for Consumer Protection (FEOSz) issued a press release in which it voiced concerns over banking fee increases at one Hungarian bank.

The organization took steps after it had received complaints from Volksbank customers about the disproportionate increase in retail and corporate banking charges. “Having looked into the charges, we found their concerns were justified,” Edit Kispál of FEOSz told the Budapest Business Journal. “In some cases, the fees have grown by up to 50%,” she added. Several fees, such as for ATM cash withdrawals, transactions and current account service charges, have been increased. The bank has also raised the annual and issuance fees of bank and credit cards. Volksbank said that the new fees and charges do not exceed the average level of Hungarian banks.

FEOSz became worried as a special group of clients has been affected. “Volksbank is known for its accessibility policy: their branches are all accessible and they place ATMs at a level that people in wheelchairs can access,” the consumer protection group noted. Although Volksbank accounts for only 1% of the Hungarian banking sector, due to the high proportion of disabled among the bank’s clients, the decision is of special importance, FEOSz said. The group then turned to the Hungarian Financial Supervisory Authority (PSzÁF), urging a probe into the matter.

PSzÁF, however, does not find the situation as alarming as the association; it actually expressed criticism over the content of the press release issued by FEOSz. The financial watchdog recently closed an investigation on the same subject and found no evidence to support the complaints. “The more prominent the idea of shifting costs to customers is in the press, the more likely banks will look at this opportunity,” PSzÁF head Károly Szász told a press conference in February. He cited his recent trip to the UK, where a similar measure has been adopted but instead of pondering on the possibility of banks dodging costs, the press focused on the newly created competition for clients.

Indeed, competition for clients has increased in the past year, but banks are targeting affluent, well-paying clients, not average people with limited incomes. The findings of a recent study by banking consulting and research firm Bankárképző and the weekly Figyelő support FEOSz’s concerns. The study examined bank account fees at the end of January 2011, and found that many banks such as CIB, KDB, K&H and UniCredit have increased fees over the past several months, at times greatly exceeding the rate of inflation.

This is not against the law, as only changes to lending contracts are regulated, while the setting of all other fees remains in the banks’ jurisdiction. The study warns that others will not wait long to follow these banks : Budapest Bank and OTP have already announced their 2011 price increases, to be implemented in late April, once the Central Statistical Office (KSH) publishes the annual inflation rate for last year.

FEOSz remains concerned. “The major problem is that financial institutions have every means to raise costs and supervisory bodies have little to prevent that,” Kispál said. “It is not as easy to change banks as is suggested, and the banks themselves won’t encourage the change either.”

Regarding the criticism received from PSzÁF over going public, FEOSz believes it is of utmost importance to inform customers about hidden charge increases. “Since the announcement, we have received more complaints from bank clients. MPs from both governing and opposition parties have also approached us to discuss possible solutions.”

Changes in regulations may be needed in the near future. The extraordinary tax on financial sector companies ate into profits in 2010: banks’ combined “other non-interest income” – the line that contains the tax – showed a loss of HUF 343.2 billion in 2010 compared to HUF 84.3 billion in 2009.