Economy
No risk of bank failure, exit from Hungary's FX loan relief package - minister
The highlights of Mihály Varga’s interview are the following:
- He does not share and even calls the views unfounded that the relief programme for FX borrowers could push some banks into bankruptcy. Foreign banks intend to stay in Hungary and the situation of MKB, which has just been sold to the state by its German owner BayernLB, was unique due to the parent bank’s undertaking to the European Commission (to sell MKB over a state bailout). It is futile to start guessing again which bank will exit Hungary for each of them declared they would stay.
- As regards the relief package for FX borrowers what remains to be settled is the recalculation of those who had previously joined the exchange rate cap scheme and some tax issues. The settlement [of past fee and interest rate hikes on FX loans] could be addressed by Parliament in September-October, which will need to be followed by the conversion of FX loans into forints. The means to this end will determine how the central bank’s foreign exchange reserves will be affected.
- The HUF 110 billion spending freeze was the creation of an “emergency buffer". Hungary’s economic processes are fine, but there have been government decisions, e.g. regarding asset policy (Főgáz, Antanna Hungária, AVE Zrt.) and it is uncertain whether or not further funding will be needed for the recapitalisation of state-owned power group MVM.
- The public works scheme, the dispute over EU funding, the much bigger impact from government-mandated utility tariff reductions and lower-than-expected inflation also necessitated the spending freeze. If fiscal developments allow, the freeze will be lifted in October-November.
- The possible reopening of the excessive deficit procedure (EDP) against Hungary has nothing to do with this emergency safety buffer. “This is confirmed by the country-specific recommendations too. We have managed to convince the Commission that fiscal developments are on track in Hungary and we will be able to meet the 2.9% [of GDP] deficit target. What is taking place right now between Budapest and Brussels is a debate over prognoses."
- Responding to NBH Governor Matolcsy’s remarks Varga said he hoped output growth will even exceed 4% some time, but for now even a smaller growth should be cherished. Added value needs to be increased, which, in his view, cannot be done without industrialisation. He added that 60% of the HUF 7.2 trillion worth of EU funds to be received in the 2014-2020 period will be spent on economic development.
- A Partnership Agreement with the European Commission is to be signed soon which will allow operative talks to pick up pace too. The cabinet would like to announce new tenders for EU development funds already at the end of the summer.
- Despite the special sectoral taxes, including the bank tax and the financial transaction tax the Hungarian market remains promising and it is worth for large companies to stay in Hungary. The dynamic growth of the economy can make the market promising even from a profit aspect. “We could not make up for an order of magnitude revenue loss now, but if there are additional resources from economic growth there are a few sectors, including the banking sector, where the special taxes could be reconsidered; the bank tax may be reviewed."
