Hungary EcoMin Nagy explains why Hungary needs fewer banks

"A little bit of economics: if there are fewer large banks, the banking system is more efficient (economies of scale), meaning it operates more cheaply.

This brings down the price of financial products, thereby generating greater competition.

There are international examples of this, such as Sweden and Austria, where there are fewer than five large banks," Márton Nagy said on Facebook, adding in a comment that anyone interested in learning more about the topic should read a previous 2006 analysis by the National Bank of Hungary (MNB).

Economies of scale are a legitimate professional argument, as banks are capital-, technology- and cost-intensive operations, and higher fixed costs are accompanied by greater revenues and typically higher cost efficiency. The usual way to achieve greater size is through acquisitions and mergers, which would enable the Minister of National Economy to achieve his goal of "five big banks."

At the same time, in addition to the four major banks named by Márton Nagy on Monday, there are a number of other credit institutions in Hungary that are highly profitable, operate efficiently and compete on price (see, for example, retail loans). It cannot be said that the larger a bank is, the cheaper its services are – in fact, the larger branch network that often accompanies larger size enables market dominance, especially in rural areas, which can reduce price competition.

Although low efficiency is occasionally a problem for some banks (this has not been typical in recent years with higher interest rates), it is typically caused not by small size or excessive competition, but by Europe's highest tax burden and state intervention in Hungary. This causes distortions in both institutional efficiency (see bank tax, extra profit tax, interest rate cap, fee cap) and service pricing efficiency (see transaction fee).

The topic was raised again last week by Márton Nagy, who had already discussed it in 2014 and 2019.

Banks are still too expensive and there are too many of them! The consolidation of the banking system cannot be delayed any longer! Five large banks may remain!

- wrote the Minister of National Economy on his Facebook page at the time. As there are currently seven major banks operating in Hungary, it seems that Márton Nagy would still consider it desirable for two major banks to merge into another (presumably domestic) credit institution group. The high cost level of banks and the high price of banking services are primarily due to state levies, but Márton Nagy did not address this issue at the time.

Subsequently, on Monday in Budapest, the Minister of National Economy went further at a conference organized by the National University of Public Service (NKE),

naming four banks (OTP, MBH, K&H, UniCredit)

that he believes can remain.

Cover photo (for illustration purposes only): Portfolio