EU tries to resolve Hungary-Ukraine spat over blacklisted OTP, blocked EU assistance

OTP blacklisted as war sponsor

On 4 May, Ukraine's National Agency on Corruption Prevention (NACP) included Hungary's OTP Bank in the list of international war sponsors. "This decision was made due to the position of the bank’s management to continue operations in Russia and the actual recognition of the so-called Donetsk and Luhansk “people’s republics”," the NACP said.

It pointed out that "Russian OTP Bank remains one of the leading banks in the Russian market of financial services even after the Russian invasion of Ukraine," adding that "the bank also provides preferential loan conditions to the Russian military."

The noted that "Russians called up for military service by mobilization or under contract, as well as their families, can apply for deferment of payments on credits and loans. At the same time, the banks refer to the Law of the Russian Federation No. 377-FZ of October 7, 2022, actually recognizing the so-called Donetsk and Luhansk “people’s republics”."

OTP claims this is a misunderstanding, arguing they may have confused the name of the Donetsk region in Ukraine with the name of a municipality in Russia called Donetsk. (See OTP's related statement below.)

Thus, by continuing the financial operations of the Russian unit, OTP Group clearly demonstrates support and sponsorship of terrorism,

the NACP said.

EU officials said they were working to resolve the issue, including trying to ascertain whether Kyiv had blacklisted the entire bank or just its Russian branch.

The blacklist also includes Austria's Raiffeisen Bank International (RBI), as well as retailers Auchan, and Metro, and Procter & Gamble, OpenWay Group, Bonduelle, Peninsula Petroleum, etc. Yet, none of their host countries linked their vote either for the 11th package of sanctions or Ukraine's assistance from the European Peace Facility (EPF) to the removal of these companies from the blacklist now comprising 24 enterprises.

Hungary rejects to play ball again

Hungary's Minister of Foreign Affairs and Trade Péter Szijjártó stated - confirming what he had already hinted at five days earlier - on Thursday that Hungary will indeed block the EU's 11th sanctions package targeting Russia, as well as the disbursement of the next (8th) tranche of the off-budget military support for Ukraine.

Until the Ukrainians remove OTP from the list of internationals sponsors of [Russia's] war, Hungary obviously cannot take part in the decisions on the European Peace Facility and the sanctions,

he said.

The minister mentioned three more reasons for the decision but was clear that OTP being blacklisted by Ukraine is the most important one.

OTP responds to Ukraine's blacklist

Following the above, OTP Bank issued a statement on 13 May calling it "totally undignified" that the NACP had listed it as an international sponsor of the war. It also stated that it would seek to convince the Ukrainian authorities of this.

The Hungarian bank believes that the main reason for the NACP's mistaken decision was the confusion of the Donetsk region with the municipality of Donetsk, which is in Russia.

In the statement, OTP pointed out that an OTP Bank branch did operate in Donetsk, Russia, until recently, but it is believed that Oleksandr Dubinsky, who reported the bank to the Ukrainian authorities, may have confused this with the Donetsk region of Ukraine, where the bank does not operate.

In response to the Ukrainian argument that OTP Bank recognised the “people’s republics of Luhansk and Donetsk”, OTP stated that — in line with the position of the EU and Hungary — it never recognised the independence of these areas in any form.

OTP Bank also dismissed the accusation that it conducted activities in the occupied territories of Ukraine and said that it operates in full compliance with local and international legislation in all its markets, including sanction regulations. Accordingly, it duly and immediately terminated all its activities in the occupied territories in 2014.

OTP emphasised that it condemned all aggression against a sovereign country, including the one committed against Ukraine, and expressed its commitment to supporting Ukrainian citizens and the country’s economy.

In addition to maintaining continuous service and lending activities, OTP has helped Ukraine with humanitarian aid worth a billion forints and provided long-term accommodation and care to hundreds of war refugees in Hungary, the bank said.

In response to the Ukrainian anti-corruption agency’s argument that OTP Bank plays an important role in the Russian economy, the bank said that it had a market share of 0.17% in Russia. International banks and other companies with a significantly larger local presence were not included on the NACP blacklist, which in itself questions the credibility of the decision, OTP noted in the statement.

As regards the accusation that OTP Bank provides “preferential loans” to members of the Russian armed forces, OTP emphasised that the Russian Federation stipulates to all financial service providers in law that those participating in the “special military operation” must be exempt from loan repayment and interest payments until December 31, 2023. After that date, repayment will continue.

OTP Bank does not provide new loans to members of the armed forces either under preferential terms or in any other form, the bank said.

EU trying to broker an agreement

We'll talk to the Ukrainians and we'll talk to the (EU) member states, including Hungary. Our priority is clear - it's to help Ukraine win a war. And to do that, there needs to be military and financial aid. It's an absolute priority for the European Union.

a senior EU official said on condition of anonymity.

The EU has provided a total of about EUR 3.6 billion for military support for Ukraine so far under the European Peace Facility.

Hungary, which is member of the EU and also NATO, has refused to provide any military equipment to its neighbour Ukraine, and has also repeatedly criticised EU sanctions against Russia, but eventually supported all the agreed measures so far.

Cover photo: Portfolio