State stells minority state in Erste Bank Hungary

Corvinus International Investment Zrt., wholly owned by the Hungarian State, will sell its 15% minority stake in Erste Bank Hungary Zrt. to the Austrian parent company Erste Bank AG, the ministry said.

The Hungarian State, through Corvinus Zrt., acquired a 15% minority stake in the Hungarian subsidiary of Erste Bank on 11 August 2016.

According to the government's assessment, the relationship between the Hungarian government and Erste Group has been very successful and stable, and the objectives set out in the strategic agreement concluded at the time of the acquisition have been fully met. The investment was also a financial success for the state, as the package acquired for HUF 38.9 bn in 2016 was now sold for HUF 87.55 bn.  

The total value of the announced transaction is thus more than double (+125%) the price paid seven years ago, and the yield has been boosted by the company's stable dividend payment (with the bank paying some HUF 20 bn in dividend to Corvinus). The share purchase agreement and the financial closing of the transaction are expected to take place before the end of this year, they said.

The agreement between Erste Group, the Hungarian government, and the EBRD in 2015 was a game changer for the Hungarian banking sector,

Erste Group Bank AG said in a statement today.

"The agreement aimed at strengthening the country’s financial sector, improving its level of efficiency and profitability, and boosting the flow of bank credits to Hungary’s private corporations, public sector and citizens," it added.

All of the involved parties fully fulfilled their obligations under the terms of the Memorandum of Understanding.

"For its part, Erste Bank Hungary exceeded its commitment to support three areas (energy efficiency, agriculture sector, and public employees), including by issuing targeted loans of 550 million euros. The 2015 agreement thus helped bring additional stability to the banking sector and created a balanced and stable partnership with the Hungarian state."

According to the ministry's statement, the government will continue to see Erste Group as an important partner "as a company with a long-term commitment to the country and as a key player in the Hungarian banking sector."

This is illustrated by the fact that in order to stimulate the credit market and increase competition, Erste Bank has also agreed to apply the voluntary interest rate cap, which allows families and businesses to borrow on much more favourable terms than before, which can mean savings of up to several million forints for a single business or family.

The common goal is to maintain a healthy credit market and boost retail and corporate lending, which will ultimately help to restore economic growth and protect jobs and families, the ministry concluded.

OVER THE COURSE OF SEVEN YEARS, THE HUNGARIAN STATE ACHIEVED A RETURN OF MORE THAN 2.5 TIMES OF THE INVESTMENT, TAKING INTO ACCOUNT THE REDEMPTION PRICE AND THE AMOUNT OF DIVIDENDS PAID TO CORVINUS IN THAT PERIOD,

Erste said in its statement.

“The cooperation between Erste Group, the Hungarian state, and the EBRD over the past seven years has contributed to Erste Bank Hungary developing into one of the most dynamically growing banks in Hungary, as evidenced by the five acquisitions the bank has made over that period,” said Willi Cernko, CEO of Erste Group.

“Erste Group remains committed to the CEE region and to Hungary’s promising role within it. We are constantly examining growth opportunities, which includes achieving one hundred percent ownership influence in the group's subsidiaries.”

The parties signed the contract on the buyback on 10 November 2023, and the transaction is set to be closed by the end of this month.

Why has the state decided to sell?

Looking at the transaction from the perspective of the Hungarian state, we can say that the deal and its timing are not accidental. In cash flow terms, state coffers will be shored up by HUF 87.5 billion (with no impact on the accrual balance), but perhaps more importantly in practical terms, the government will use part of this to cover the purchase of Liszt Ferenc Airport.

Márton Nagy, the Minister for Economic Development, who is responsible for the purchase of the airport, said a month ago that the purchase of Budapest Airport could be financed in a package deal that could include budget funds, development bank money and the sale of non-strategic assets.

On this basis, it appears that the minority state ownership of Erste was not a strategic asset.