April 26, 2019 / 1:49 PM / in 24 days

Hungary would benefit from a new domestic banking group, MKB chief says

BUDAPEST (Reuters) - Hungary would benefit from having another major domestic bank, the head of MKB Bank said on Friday, without shedding light on whether MKB would bid for Budapest Bank, which was put up for sale this year.

Since taking power in 2010, Prime Minister Viktor Orban has overhauled the local bank sector, boosting domestic ownership to more than 50 percent in a market previously dominated by large foreign lenders.

The biggest lender by far remains Hungary’s OTP Bank, followed by the local units of Belgian KBC, Italian UniCredit and Intesa SanPaolo, Austrian Erste Group Bank and Raiffeisen.

“On the whole, it would be more healthy to have another big domestic banking center,” MKB Bank Chief Executive Adam Balog told a news conference on Friday in response to questions about the privatization of Budapest Bank.

“This could still mean there are many foreign banks remaining, competition staying healthy and the domestic-foreign exposure staying appropriate,” he said.

Balog added however that this was his “general opinion”, and could only discuss specifics about Budapest Bank once MKB learns concrete details about the process.

Orban’s government has said Budapest Bank should be sold for no less than the $700 million it paid to the financial arm of General Electric when it bought the bank in 2015.

Budapest Bank mainly serves small businesses but has also expanded heavily in retail lending in recent years, posting a 2018 net profit of 12.5 billion forints ($43 million). The minister in charge of the sale is due to report to the cabinet by June 30.

Banks in Hungary have enjoyed a lending revival and hefty economic growth and the acquisition could provide a further boon by enabling the buyer to cut costs.

KBC, Erste Group and Raiffeisen have all signaled interest in Budapest Bank, Hungary’s eighth-largest lender by 2017 assets, as has Takarek, a domestic savings and loans group, which is transforming into a universal bank.

Hungary has targeted at least 50 percent domestic ownership in the banking sector, a key plank in Orban’s economic policy, which could mean Budapest Bank will end up in domestic hands.

Lorinc Meszaros, an associate of PM Orban, controls a 48.6 percent stake in MKB Bank according to an August 2018 disclosure by holding company Konzum, itself linked to Meszaros, whose businesses have flourished under Orban’s rule.

A top Konzum official told business website portfolio.hu in September that the group was looking for sizeable deals in four markets, including banking, real estate and telecommunications.

MKB’s Balog said, however, that the bank, which is in the final stages of a European Union-sanctioned restructuring process, still had some restrictions on business activity, even though a ban on acquisitions had already expired.

One condition imposes a 1.8 to 2 trillion forint limit on the size of its balance sheet at the end of this year compared with 1.86 trillion forints at the end of 2018.

“This means we cannot own any asset which would affect this restriction,” Balog said.

Reporting by Gergely Szakacs; Editing by Elaine Hardcastle

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