Economy
Nomura sees more painful banking policy beyond FX debt plan in Hungary
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First, with a purchase price of EUR 55 million Bayern effectively paid for the Hungarian state to take the asset as it has also written off EUR 270 m of parent company debt, said Peter Attard Montalto, strategist at Nomura in London, in a research note published late on Thursday.
“However, the desire to dispose of the asset beyond simply the regulatory requirements was clear from the Bavarian Finance Minister’s comments that it was a “coup" to dispose of such a “contaminated" asset," he added.
Attard Montalto said he had expected the announcement of Hungary’s FX debt plan to be a key factor in giving much greater visibility to banks’ balance sheet structure and value.
“The fact that MKB will not yet have paid the FX debt compensation, and the conversion has not yet occurred, offers some explanation for the negative valuation on the company. There is more to come in our view once the actual conversion occurs at year-end and compensation is out of the way," he added.
From Hungary’s perspective, this move shows a greater willingness than many expected on the part of the government to put its own balance sheet to use, the strategist noted.
He reminded that so far the state has had operations through Web-bank and recently placed Takarékbank back in the private sector. There are also Postbank’s joint venue with FHB, and government stakes in the FIDESZ-connected Gránit and Széchenyi banks.
Attard Moltalto sees this as “economic nationalism at work as, off-balance sheet, the state continues to extend its reach into the economy."
Given what the government is doing to the banking system, he thinks it “clearly has a strategy to offset future banking sector sclerosis after FX debt conversion by injecting a certain state-owned substitution of dynamism into the economy."
Shortly after the sale was announced, there was a comment from central bank Managing Director Márton Nagy saying that it saw three or four foreign banks overall exiting the market to meet Prime Minister Orbán’s long-run aim of 50% of assets being locally owned.
The government is now planning to create a bad-bank to take on non-performing mortgage loans from banks.
After the announcement of the MKB deal, Simon Quijano-Evans, a London-based analyst at Commerzbank, said that “this seems to be in line with the government's program to: 1) "punish" banks for the FX loans excesses of the past years and 2) apparently raise the state ownership of the banking sector to an "ideal" ratio of 30% [...], and could also be combined with an increasing willingness for a weaker HUF, once FX loans are transferred into HUF."Attard Montalto still believes the government would eventually like these assets in private local hands but added that “a key element of that will be the work the MNB is doing behind the scenes to develop a strategy to support the government’s aims in this area and promote local pools of capital to take over these bank assets."
“Future bank disposals may also have to go via the state - though, as reported by Reuters, Hungary’s biggest bank, OTP, had been in talks with BayernLB on MKB, and other local entities have also shown some interest for instance in the previous failed attempts by Raiffeisen Bank International to exit," he added.
In Attard Montalto’s view, this deal, however, sets a benchmark of foreign banks exiting Hungary by being paid a moderate cash sum and cancelling a large portion of intercompany loans. The loans had previously been a major sticking point for Raiffeisen and also of concern to the MNB, he noted.
“This is the 19th company that Mr Orbán’s government has nationalised. While promising to do otherwise, we think the government is unlikely to be able to change what appears to be the universal law of state-owned banks being inefficient institutions with dubious asset books. That story will likely take considerable time to emerge, however, so the market may well ignore this issue for now. State-owned banks like this will also be an additional backstop for the bond curve and utilise the MNB postmodern measures."Attard Montalto said this type of news confirms in his mind the rising debt levels of the government “as this increasingly large number of off-(budget) balance sheet companies drain more and more state resources - that is credit negative, and we now expect debt to GDP to be around 85% at year-end."
In his view, this news is also a reminder that “there is more banking policy to come beyond the EUR 4.5 bn estimated hit from the FX debt plan. SME debt conversion will also come at some stage next year, as well as further news from the MNB on banking sector restructuring."
“However, the desire to dispose of the asset beyond simply the regulatory requirements was clear from the Bavarian Finance Minister’s comments that it was a “coup" to dispose of such a “contaminated" asset," he added.
Attard Montalto said he had expected the announcement of Hungary’s FX debt plan to be a key factor in giving much greater visibility to banks’ balance sheet structure and value.
“The fact that MKB will not yet have paid the FX debt compensation, and the conversion has not yet occurred, offers some explanation for the negative valuation on the company. There is more to come in our view once the actual conversion occurs at year-end and compensation is out of the way," he added.
From Hungary’s perspective, this move shows a greater willingness than many expected on the part of the government to put its own balance sheet to use, the strategist noted.
He reminded that so far the state has had operations through Web-bank and recently placed Takarékbank back in the private sector. There are also Postbank’s joint venue with FHB, and government stakes in the FIDESZ-connected Gránit and Széchenyi banks.
Attard Moltalto sees this as “economic nationalism at work as, off-balance sheet, the state continues to extend its reach into the economy."
Given what the government is doing to the banking system, he thinks it “clearly has a strategy to offset future banking sector sclerosis after FX debt conversion by injecting a certain state-owned substitution of dynamism into the economy."
Shortly after the sale was announced, there was a comment from central bank Managing Director Márton Nagy saying that it saw three or four foreign banks overall exiting the market to meet Prime Minister Orbán’s long-run aim of 50% of assets being locally owned.
The government is now planning to create a bad-bank to take on non-performing mortgage loans from banks.
After the announcement of the MKB deal, Simon Quijano-Evans, a London-based analyst at Commerzbank, said that “this seems to be in line with the government's program to: 1) "punish" banks for the FX loans excesses of the past years and 2) apparently raise the state ownership of the banking sector to an "ideal" ratio of 30% [...], and could also be combined with an increasing willingness for a weaker HUF, once FX loans are transferred into HUF."Attard Montalto still believes the government would eventually like these assets in private local hands but added that “a key element of that will be the work the MNB is doing behind the scenes to develop a strategy to support the government’s aims in this area and promote local pools of capital to take over these bank assets."
“Future bank disposals may also have to go via the state - though, as reported by Reuters, Hungary’s biggest bank, OTP, had been in talks with BayernLB on MKB, and other local entities have also shown some interest for instance in the previous failed attempts by Raiffeisen Bank International to exit," he added.
In Attard Montalto’s view, this deal, however, sets a benchmark of foreign banks exiting Hungary by being paid a moderate cash sum and cancelling a large portion of intercompany loans. The loans had previously been a major sticking point for Raiffeisen and also of concern to the MNB, he noted.
“This is the 19th company that Mr Orbán’s government has nationalised. While promising to do otherwise, we think the government is unlikely to be able to change what appears to be the universal law of state-owned banks being inefficient institutions with dubious asset books. That story will likely take considerable time to emerge, however, so the market may well ignore this issue for now. State-owned banks like this will also be an additional backstop for the bond curve and utilise the MNB postmodern measures."Attard Montalto said this type of news confirms in his mind the rising debt levels of the government “as this increasingly large number of off-(budget) balance sheet companies drain more and more state resources - that is credit negative, and we now expect debt to GDP to be around 85% at year-end."
In his view, this news is also a reminder that “there is more banking policy to come beyond the EUR 4.5 bn estimated hit from the FX debt plan. SME debt conversion will also come at some stage next year, as well as further news from the MNB on banking sector restructuring."
