Economy
Banks in Hungary need to forget about retail borrowers, revenues for a while - c.banker
“Retail customers and revenues have to be forgotten for a while, that is the future. The banks have no other choice, the large ones will merge, five banks could remain," Nagy, responsible for financial stability and loan incentives, told a financial summit of the Hungarian Business Leaders Forum (HBLF) on Friday, index.hu reported.
He thinks that the banks need to focus on costs and efficiency instead of revenues.
“You should change your business policy," he urged the lenders.
As regards the settlement of loan charges the government and courts deemed unfair, he noted that this is a HUF 1,000 billion item, about HUF 700 bn of which will be the actual loss for the banks. He added that monthly instalments of forex borrowers will drop by 25-30% on average as a result of the forex loan relief programme.
Non-performing loans will remain a problem even after the relief scheme, Nagy said. He noted that the NPL ratio is especially high, around 30%, at commercial real estate loans, which the banking system will not be able to get rid of. The Asset Manager could remedy the NPL problem efficiently, he added. It remains a question, though, at what price the asset manager should buy, but it is certain that there is a great difference between book value and market value.
Nagy said that if we compare how many large banks Hungary and its regional peers have, we can say that eight in Hungary are relatively too many. In order to reach an earlier level of cost efficiency the market needs to be consolidated. The ratio of operating cost to income is currently around 70%. In order to reach the EU average of 59% the share of the five largest banks should rise to around 90%, he said. This, in his view, suggests that mergers will take place. He has warned, however, that an oligopolistic market structure must be prevented from taking shape.
Nagy thinks that instead of retail lending the focus will be on corporate lending and instead of the revenue side the focus will be on costs.
Nagy believes that in a pure market environment this concentration he has mentioned could take place without any further problem, but in practice this is a more complex task. The subsidiaries are listed at a much higher value in their parents’ books than their actual market value, so even if there is bargaining demand and supply will never meet. At the same time, there will have to be mergers in time. Nagy said he is certain that this is the future.
He thinks that the banks need to focus on costs and efficiency instead of revenues.
“You should change your business policy," he urged the lenders.
As regards the settlement of loan charges the government and courts deemed unfair, he noted that this is a HUF 1,000 billion item, about HUF 700 bn of which will be the actual loss for the banks. He added that monthly instalments of forex borrowers will drop by 25-30% on average as a result of the forex loan relief programme.
Non-performing loans will remain a problem even after the relief scheme, Nagy said. He noted that the NPL ratio is especially high, around 30%, at commercial real estate loans, which the banking system will not be able to get rid of. The Asset Manager could remedy the NPL problem efficiently, he added. It remains a question, though, at what price the asset manager should buy, but it is certain that there is a great difference between book value and market value.
Details on the asset manager
- Eligible counterparty: Any solvent and liquid credit institution (both corporations and co-operatives) active in the EU, which has commercial real estate exposure in Hungary or holds Hungarian commercial real estate on its balance sheet.
- Eligible assets: Commercial real estate loan or foreclosed commercial property, where the bank provided financing for property development for future sales or rentals, partly or totally, or where the source of repayment is the cash-flow generated by the real estate property
- Minimum value threshold for assets: For commercial real estate loans min HUF 500 million. For foreclosed real estate properties min HUF 200 million.
- Time of origination: Will be determined later on.
- Transfer price: The pricing technique remains to be determined, no conciliations have taken place with the banks. The transfer price may be below book value.
- Financing: MNB credit line up to HUF 300 billion, with a term of maximum 10 years.
- Planned operating period of the Asset Management Agency: 10 years maximum.
Nagy said that if we compare how many large banks Hungary and its regional peers have, we can say that eight in Hungary are relatively too many. In order to reach an earlier level of cost efficiency the market needs to be consolidated. The ratio of operating cost to income is currently around 70%. In order to reach the EU average of 59% the share of the five largest banks should rise to around 90%, he said. This, in his view, suggests that mergers will take place. He has warned, however, that an oligopolistic market structure must be prevented from taking shape.
Nagy thinks that instead of retail lending the focus will be on corporate lending and instead of the revenue side the focus will be on costs.
Nagy believes that in a pure market environment this concentration he has mentioned could take place without any further problem, but in practice this is a more complex task. The subsidiaries are listed at a much higher value in their parents’ books than their actual market value, so even if there is bargaining demand and supply will never meet. At the same time, there will have to be mergers in time. Nagy said he is certain that this is the future.
