What will happen to Hungarian banks in 2024? Bank CEOs tell us

Péter Csányi Deputy CEO, OTP Bank

1. We have had a very mixed year. The domestic economic recession, high inflation and the accompanying interest rate environment have led to a fall in real wages and a fall in demand for credit. A shortfall in EU funds, coupled with extra government cuts, has further strained the situation not only for banks but for the economy as a whole. A unique feature of OTP Bank is that its results are increasingly being driven by the performance of its foreign subsidiaries, reaching 66% in the first three quarters of the year, allowing the group to smooth out the temporary difficulties in some countries. It meant a lot in 2023 that, despite the ongoing war in Ukraine, we managed to stabilise the performance of both our Ukrainian and Russian subsidiary banks. OTP's growth is uninterrupted, and in addition to organic growth, we have acquired two banks this year, making us the market leader in Slovenia and entering the large and promising market of Uzbekistan. Our banking group's first-quarter profits reached a record level, thanks in large part to new bank acquisitions, while our total assets exceeded the psychological €100 billion mark. We are particularly proud that, in addition to this growth and outstanding profitability, OTP is the fourth most stable bank in the EU according to the European Banking Authority's 2023 stress test.

2. Digitalisation remains one of the biggest challenges for the whole banking sector. The competition from neo-banks and fintech providers is beneficial for the development of banks, but the issue of "same business - same regulation" is still unresolved. Dialogue between the legislator and the banking industry is well underway to remove further and further barriers to faster and more convenient digital services for customers. As well as speed and convenience, security is the most important aspect, and I expect to see the rapid spread of data theft crimes curbed by 2024. In addition to awareness-raising activities and close cooperation with law enforcement, OTP is also working to prevent criminals from causing more and more damage by stealing data from customers through its own developments and sector-wide cooperation (such as the CyberShield programme). From an economic perspective, my expectations are positive. The external headwinds that have been slowing down the region's economies are diminishing, as interest rate cuts in the developed world are coming and the euro area's economy is set to grow after the stagnation caused by the energy crisis and monetary tightening. In the countries of the region, the inflation shock is also abating, interest rates are expected to fall and real wages are back on an upward path, so that economic growth could accelerate after the slowdown, followed by an expansion in banking markets. This is particularly true in Hungary, where the economy could return to growth after the recession in 2023, helped by the EU funds already available.

3. Artificial intelligence (AI) will be the hot topic of innovation for the banking sector in 2024. The use of AI will increase both in background processes and in services, and OTP Bank is aiming to play a pioneering role in this field not only in Hungary but also in the whole region through its own R&D project (in cooperation with the relevant ministries). The reduction in interest rates will be beneficial for both retail and corporate lending, while targeted, state-subsidised schemes will continue to be essential to stimulate growth. Green finance will continue to grow. All banks are taking their responsibility to build a sustainable economy more and more seriously, and OTP Bank is a market leader in this area. We are not only first, but also unique in building ecosystems beyond banking, an area where I expect to see further significant progress in 2024, following our solutions for payments, private healthcare and home creation.

Ádám Egerszegi Deputy CEO, MBH Bank

1. 2023 was without a doubt an outstanding year in the MBH Group's operations. We completed the triple merger, which was of historic importance for the banking sector and unique in Central and Eastern Europe, in record time, and became an unavoidable player in the Hungarian banking sector, ushering in a new era in the market. This year has already shown that the merger has created a new credit institution that is not only much larger than before, but also more efficient, able to grow its results with stable operations and capital, while increasing its market share organically and through acquisitions. Despite the economic challenges and slowing lending, the Hungarian credit sector achieved record results in the first three quarters, with MBH Bank making a major contribution, with adjusted pre-tax profit of HUF 272.3 billion by end-September.

2. If the major and known external conflicts do not escalate and the positive trends stay with us, I expect a good period for the financial sector to return to growth. Lending will start to pick up, but we continue to see that by the end of 2024, early 2025, we will be back to 2022 levels in mortgage lending, for example. Our main objective for the coming year is to continue building MBH Bank: we will continue to renew our branch network, double the number of ATMs, making ours the largest network with more than 1,600 units, and introduce new unified digital channels for retail and investment banking customers. In addition, the systematic internal and external build-up that has characterised the last period, including acquisitions such as the Fundamenta takeover, will allow us to further strengthen our market positions.

3. We expect a lot from 2024 and from ourselves, leaving the merger behind us, continuing to exploit synergies, focusing on making processes and service even more customer-centric. We will continue to build on the work we have started in the area of digitalisation. We are already building our new services in the new cloud-based system. Artificial intelligence has already begun to reshape the banking market and will undoubtedly have an even greater impact on customer service trends and the needs and perceptions of banking in the future. The first generative AI developments will be sharpened in the first part of the year. In daily banking and investment services, we will continue to expand our online services. I expect further significant progress in online lending.

Guy Libot CEO, K&H Bank

1. Compared to our expectations a year ago, inflation and the budget deficit were higher in 2023, while energy prices and the trade deficit were lower. We are now more optimistic about next year, as inflation and interest rates are falling, the forint is relatively stable, unemployment is low, and gas storage is full. Of course, the economic conditions have also had an impact on the banking sector and K&H: mortgage lending has slowed down due to high interest rates, while on the corporate side we have been able to achieve nice growth, including from government-subsidised lending programmes. Due to low unemployment, the non-performing loan ratio in the retail sector remained low. While on the deposit side, high interest rates helped the sector's profitability, banks played a significant role in financing the high budget deficit through extra taxes and helping customers through this difficult period by extending the moratorium and freezing interest rates. K&H delivered another solid performance in 2023. Results were fuelled by a growing customer base, sales of investment funds and a growing loan portfolio. Overall, the Hungarian banking system remained solid, with strong and healthy balance sheets, and the key financial indicators of Hungarian financial institutions presented a robust picture.

2. In 2024, the biggest challenge will remain the digital and green transition. Within this, there are legislative obligations such as AFR 2.0, but beyond that, of course, we want to offer more new digital services to our residential, SME and corporate customers, as well as further develop the country's only voice-based digital assistant, Kate.

3. We will continue to build and enrich our new mobile banking app with banking, insurance and other banking products and services. Our primary goal has always been and will remain to develop a future-proof bank. To this end, we will continue to accelerate our green lending and investment activities for our customers, helping individuals and businesses alike to make the green transition. We expect energy-efficient home renovations to continue and grow, so we anticipate an increase in demand for green loans. On the classic product side, we expect the housing loan market to pick up again in the near future, but the extent to which this will happen will depend on several factors, including inflation and the National Bank of Hungary's (MNB) base rate, house price developments and real wage developments.

Radován Jelasity, Chairman and CEO, Erste Bank

1. Due to the significant fall in government bond yields, the sector had a good year considering the circumstances. Higher interest rates led to a significant reduction in lending, government-backed schemes kept corporate financing alive and changes in conditions moved the market meaningfully throughout the year. In the retail business, the declining interest rate environment and the voluntary interest rate freeze made a noticeable difference. Erste, for example, increased its new retail lending by 10% in October compared to the previous month. Meanwhile, the difficulties are not yet visible in the sector's numbers. On paper, Erste's profits rose fivefold in the first nine months, but this was largely due to one-off effects, the revaluation of subsidised loans and the OBA reimbursement in connection with Sberbank, without which profits would in fact have risen by only a tenth. A similar situation applies to the majority of domestic banks. However, in addition to the two factors already mentioned, the profitability of the sector was boosted by the results of OTP's foreign subsidiaries, which accounted for almost half of the profit.

2. The character of the banking system will change as a result of changes in the terms and conditions of state-subsidised schemes and a reduction in interest rates. On the one hand, the banks' own market-based offerings and solutions will play a greater role, so there may be real differences between individual offers. But the decline in interest income will also have an impact on competition for services: as comfortable revenues disappear and fee increases are limited by the rate of inflation, new products and higher value-added services will be needed to operate profitably. At the same time, ensuring a high level of information security will be a major challenge for all banks. With the spread of digitalisation, the number of attack surfaces is increasing, and the number of financial fraud, phishing attacks and attempted fraud has soared this year. On the one hand, we are racing against criminals in terms of developments, and on the other hand, we need to constantly raise awareness among customers about how they can protect themselves, what they can do, what new solutions are available to them.

3. Next year we will have several improvements to prevent fraud, one of which is the possibility to flexibly set daily transfer limits for all customer segments. Improvements will also be driven by regulatory requirements in the coming year - the introduction of a single QR code payment will be mandatory from February. Let's hope this really gives the boost to the uptake of cashless payments that is expected. We think in terms of customised solutions in our digital development. For example, automatic financial advice that George [Erste Bank's internet banking and mobile app service - ed.] can give after analysing an account's activity, or a dedicated module to assess and improve financial health. The range of products available digitally is also constantly expanding. For example, credit scoring is now done solely by the machine for low-rate quick loans. But January will also see the launch of our instant credit and debit card, which means that at the end of the application process, the card can be tokenised and used immediately by inserting it into the phone and making payments.

Balázs Tóth, Chairman and CEO, UniCredit Bank

1. One thing I am very proud of: this year UniCredit won the MNB Green Bank Award. We won because we think long-term. And one of the foundations of the long term is to do what we do in a sustainable way. We lend with that in mind, that's how we do our day-to-day work. But this year there have been several events that I hope will be temporary. High inflation, economic uncertainty, wars. Despite all of these, and even with the extra taxes, the sector has performed exceptionally well - but there are many individual, short-term foundations for success. One of these is the high interest rate environment, but this is expected to decline in the future. And in many cases banks have now been able to release provisions that they had to build up earlier because of the war in the neighbourhood or the moratorium. In addition, valuation factors and a concentrated item have also contributed to the result. If we remove these from the picture, the sector's performance is no longer outstanding. The flexibility and high adaptability of my colleagues ensured quality service to our clients in the face of this year's challenges and contributed to the continued profitability of our bank.

2. Inflation is expected to fall and the economic outlook is improving, so I hope that many of the government's temporary measures will be changed or phased out, and some we already know will be removed. This is a key issue for predictability. Another question is how interest rate paths and short- and long-term borrowing costs will evolve as inflation falls. The common interest is to stimulate demand for credit. Financing the green transition could be one of the biggest challenges for the corporate credit market in 2024. This is an area where not only capital is needed, but also unprecedented expertise. With interest rates falling, our corporate clients continue to expect subsidised loan programmes to continue and expand. But "evergreen" digitisation is also an ongoing challenge, especially with new solutions offered by digital citizenship and the potential of digitising mortgage and land registry processes.

3. We launched our Digital Document Sharing App, one of our new innovative solutions for 2023. Our goal is to have more and more of our customers discover it in 2024. It's a win-win: our business customers can share electronic documents with our bank securely and sign contracts without the need to be physically present or use paper. So digitalisation will also play a big part in our green thinking next year. And for our customers looking for savings opportunities, with the launch of the onemarkets Fund in November, they can choose from a wide range of unique investment funds managed by the world's most professional fund managers, available only at UniCredit Bank. Statistics show that Hungarian households' savings are growing, there is savings potential, so we expect growth in this business line as well. In corporate lending, I would again highlight green finance, where we see above average growth potential, but government incentives could also play a major role.

György Zolnai CEO, Raiffeisen Bank

1. I am proud that Raiffeisen Bank is on a sustainable growth path and is expected to deliver strong results in 2023, as it did last year. Perhaps more importantly, independent (NPS) measurements show that customers are also the most satisfied with us. At the same time, external market uncertainties are markedly present: beyond geopolitics, government interventions affecting the domestic banking sector have intensified, such as the increased extra profit tax, extended interest rate caps and the interest rate ceiling. On the positive side, corporate lending activity is able to grow again this year (+10%) thanks to subsidised schemes. Growth in the retail credit market slowed (+3%), but improved again in the second half of the year. I am very pleased to see that Raiffeisen Bank's deposit growth and assets under management grew faster than the market. In the field of digitalisation, we have put six significant developments in the hands of our customers, such as NFC account opening instead of the old video, mobile app-managed investment portfolio and stock trading.

2. For the economy and the banking sector, the main objective would be to restart lending, for which the full phasing out of measures affecting the sector (corporate and retail interest caps and the extra profit tax) by the end of 2024 as planned is an important condition. There are high expectations for the resumption of subsidised lending programmes next year, for which we, like our clients, are ready to spring into action. The declining interest rate trajectory may cause a reallocation of portfolios, hopefully towards sustainable investment products, of which we at Raiffeisen offer a variety. We must also not forget the increase in cyber fraud this year, which is being perpetrated by scamming customers. We have many preventive techniques in place at Raiffeisen Bank, but to stop it completely will require strong customer communication and further coordinated banking and law enforcement techniques.

3. AFR 2.0 will become mandatory, which will accelerate the uptake of various next-generation payment solutions: QR code technology will make transactions very simple. Raiffeisen Bank is preparing to launch an innovative combined QR and card acceptance service. And for our large corporate customers, we will be able to offer the highest level of service with instant payment solutions complemented by API ecosystem services. Raiffeisen Leasing will be significantly strengthened and the focus will remain and even increase on green lending, which can now also be requested for retail purposes. With interest rates on a downward trend, there are hopes for a revival in the real estate market and thus a pick-up in mortgage lending. Although the eligibility criteria have changed, we are doing our utmost to make the application process even faster and smoother, using video, online or automated channels.

Pál Simák, Chairman and CEO, CIB Bank

1. 2023 promises to be a successful year for the profitability of the Hungarian banking sector. The high interest rate environment plays a key role in this, even as the banking sector has made a voluntary sacrifice to support the real economy and household consumption by lowering lending rates, thereby foregoing part of its profitability. As for CIB, this year will be one of the most successful years in our history with a significant increase in after-tax profit. With a high quality portfolio, we have been one of the most dynamic in growing our loan and savings portfolio and thus our market share. At CIB, like our parent company, we believe that our success depends to a large extent on how our colleagues feel.

2. By 2024, the biggest challenge for the banking sector will be to cushion and compensate for the loss of revenues due to the normalising interest rate environment. All banks will face a contraction in revenues as a result of falling forint interest rates, while on the cost side there will be a pass-through effect from the high inflation of recent years. As the timing of the recovery in lending is still uncertain, we expect a situation of around stagnation next year, so it will be a challenge to compensate for falling margins on the volume side. On the asset side, the interest rate cap cuts will further reduce margins, and on the liability side, the corporate rate freeze could turn customers away from bank deposits, which could worsen the loan-to-deposit ratio. There is a lot of new legislation for the sector to comply with: one of the largest scale is ESG-related tasks. I should also mention fraud prevention, which is in everyone's interest. Of course, CIB is ready for the challenges of 2024, and we expect another successful year next year.

3. The most obvious answer is to further develop the potential of AI and digitalisation. Of course, these directions are also on the agenda in the CIB. We are looking at how AI can be applied as effectively as possible in our operations, taking into account the HR implications that this may have. A new direction at CIB that we expect to see a lot of is the introduction of our new bank insurance and affluent-private banking customer service model on the retail side, and our new Confirming service and leasing processes on the corporate side. In both customer segments, we aim to complete the digital banking ecosystem. We are committed to maintaining CIB's leadership in digital penetration in the Hungarian banking sector, as demonstrated by the fact that the number of our customers paying with mobile wallets recently exceeded 100,000. And of course, we want to continue to be a good place to work, because our success is deposited by our colleagues.

Éva Hegedüs Chairman and CEO, Gránit Bank

1. As in the last 13 years, Gránit Bank grew faster than the banking sector this year, according to data at the end of October, in terms of total assets, loans and deposits. By the end of October this year, retail lending by banks had grown by 2.6%, while Gránit Bank managed to grow by 31.1%. The retail deposits of credit institutions decreased by more than 12% over the same period, while Gránit Bank recorded an increase of 4.3%. Our performance in the corporate segment is also significantly more attractive compared to our competitors. In terms of efficiency and profitability ratios, we are also in a better position compared to the banking sector average, with a cost/income ratio of 41.9% for the banking sector compared to 32.2% for Gránit Bank, and an operating cost/balance sheet total of 1.2% for Gránit Bank compared to an average of 2.1% for our competitors. Thanks to a digital strategy based on sustainable growth, Gránit Bank is expected to be the ninth largest bank at the end of 2023, with a balance sheet total of around HUF 1,200 billion and a pre-tax profit of more than HUF 21 billion, still with a very low NPL of 0.03%.  

2. We expect inflation and interest rates to ease from the second half of next year, which will help market credit growth, and the announced government programmes will support lending in the meantime. I expect competition to intensify, which I think is a very good thing as it will inspire additional output, and we are planning for dynamic expansion in 2024. Today, domestic banks are already offering digital services, but I am confident that we can continue to build on our speed, agility and experience in introducing innovations to maintain our competitive advantage. By consciously building and consistently executing a business strategy that is both digital and conservative, Gránit Bank has become a major bank. Continuous profit generation and recycling of earnings has enabled the Equilor Investment Ltd and Diófa Fund Management transactions, and we are currently close to closing another acquisition while we work on further expansion. So there will be plenty of work to do, and our knowledge, experience and capital position will enable us to further increase the Bank's shareholder value in the coming year.

3. In 2024, the digitisation of banking services is expected to accelerate further, and the potential of artificial intelligence is also expected to be exploited. Gránit Bank is not only focused on innovations related to payment services, although we have entered the market with several first-of-its-kind services in this area, but we also favour end-to-end solutions in both retail and corporate lending processes. We will continue to digitise financial services and expand our services, while building a digital ecosystem using artificial intelligence and other technologies. In the coming year, we will make our investment services more complex, similar to our credit and payment services, by launching a mobile banking app tailored to customers' needs and providing a high UX experience, and we plan to enter the retail unsecured lending market and expand our leasing business.

The answers are ranked by the consolidated balance sheet total of the banking groups at the end of 2022.

Cover photo: Getty Images