October 16, 2018 / 8:01 AM / a month ago

Hungary plans to scrap state support for home savings bank deposits

BUDAPEST (Reuters) - Hungary’s government plans to end state subsidies for home savings bank deposits, saying that the scheme was costly, inefficient and had failed to encourage the construction of new houses.

The measure, to be debated by lawmakers on Tuesday, could dent profits of banks operating in Hungary, including domestic lender OTP Bank OTPB.BU, Austria’s Erste Group Bank (ERST.VI) and Fundamenta, majority-owned by Germany’s Bausparkasse Schwäbisch Hall.

Each institution declined immediate comment on the measure.

After taking power in 2010, Orban slapped banks with hefty taxes and measures to help borrowers at the expense of lenders to shore up state finances. In a landmark 2015 agreement, he agreed to cut the bank tax and refrain from further unilateral measures that hurt banks.

The fast-track measure comes amid a general improvement in Hungary’s economy and a boom in lending, which has bolstered banking profits. The bill, which if passed will end subsidies immediately, caught the market by surprise.

“The state has supported home savings schemes for more than twenty years, but this form of savings does not effectively support home creation objectives, while service providers are realising extra profits on part of the state subsidies,” ruling Fidesz party lawmaker Erik Banki said in the bill.

“The home savings scheme has become an expensive but inefficient instrument for both the state and taxpayers,” Banki said, adding that the government should channel those funds to other programmes to support housing.

Banki said the main lenders have made profits of almost 60 billion forints (163.8 million pounds) on the scheme since Orban’s government took power in 2010. He said the scheme would cost the country more than 70 billion forints this year.

Hungarian real estate broker Duna House Holding DUNA.BU said that scrapping the subsidy may cut the volumes of the scheme to zero and could hurt its results in the short term.

It added that the proposed changes may trigger consolidation in the loan brokerage sector over the medium term, which could increase the company’s market share in mortgage loans.

Reporting by Gergely Szakacs; Editing by Andrew Heavens and Louise Heavens

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