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UPDATE 3-Hungary offers olive branch to battered banks
February 9, 2015 / 6:41 PM / 3 years ago

UPDATE 3-Hungary offers olive branch to battered banks

(Recasts with comments from press conference, EBRD statement)

* Hungary, EBRD to gain up to 15 pct each in Erste Hungarian unit

* PM Orban pledges new deal with banks after heavy taxes

* Budapest to cut bank tax from 2016 onwards

* Erste to boost lending in Hungary

By Krisztina Than and Gergely Szakacs

BUDAPEST/VIENNA, Feb 9 (Reuters) - Hungarian Prime Minister Viktor Orban has offered a truce to the foreign banks he has been squeezing for years, saying on Monday he would make their lives easier in exchange for them lending more to boost his country’s economic recovery.

Under the deal, the Hungarian state and the European Bank for Reconstruction and Development (EBRD) will between them take a stake of up to 30 percent in the local unit of Austria’s Erste Bank, hit by levies imposed by Orban’s government.

Orban said the deal would open a new chapter for banks in Hungary, though it was not clear if the pact could win over all foreign lenders, previously told the government would relent only to come under renewed pressure.

“The government has signed up to a number of very significant commitments,” EBRD President Suma Chakrabarti told a news conference with Orban and Erste chief Andreas Treichl.

The deal marks a U-turn, since Orban has for years accused foreign banks of duping borrowers, imposed heavy taxes and levies on them, and vowed to reduce their market share.

This was part of a campaign in which he also took on foreign telecoms and retailers, fought the International Monetary Fund and reshaped the Hungarian state, bringing accusations, which he denies, of eroding democracy.

But Orban’s room for manoeuvre is shrinking. The economy needs investment, while Washington has accused senior Hungarian officials of corruption and cracks are showing in Orban’s entourage.

Monday’s deal involves Hungary reducing the amount raised from its windfall tax on banks, which has raised about 2.5 billion euros since 2010, by about 60 billion forints ($221 million) in 2016. After that Hungary will strive to reduce the tax to the level usually applied in Europe, Orban said.

The government also softened its stated objective of increasing Hungarian ownership of the banking sector to 60 percent, which could have meant at least some big foreign lenders selling up.

The EBRD said Budapest agreed it does not intend to take direct or indirect majority stakes in systemically important local banks. The state has bought two banks but the deal states it would sell its holdings within three years.

Bank shares rose on the Budapest bourse, with local lender OTP up 5 percent in late trade.

Hungary’s top banks also include Austria’s Raiffeisen, Italy’s Intesa SanPaolo and UniCredit, and Belgium’s KBC.

Erste said it had had difficult years in Hungary but wanted to focus on the future. It pledged to boost lending by over 550 million euros in the next three years. ($1 = 0.8848 euros) ($1 = 271.2600 forints) (Additional reporting by Michael Shields and Marton Dunai; Editing by Christian Lowe and David Holmes)

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