Hungarian banks cautious on lending prospects, putting truce in doubt

MBH Jelzalogbank Nyrt

16/04/2015 16:28

* PM says to cut windfall tax in return for more lending 
    * Most lending increase so far due to central bank scheme 
    * Stocks rallied after truce, S&P upgraded rating 
 
    By Gergely Szakacs 
    BUDAPEST, April 16 (Reuters) - Banks in Hungary could lose 
out on a tax cut promised by Prime Minister Viktor Orban because 
they are struggling to meet a condition he has set them to 
increase their lending due to weak demand. 
    Reuters questioned seven major banks operating in Hungary, 
including the units of Erste  ERST.VI , Raiffeisen  RBIV.VI  and 
UniCredit  CRDI.MI , about their lending plans. 
    Orban and the banks have been at loggerheads for years of 
over taxes and measures aimed at helping households, but that 
banks say have come at their expense. In February, he offered an 
olive branch, saying he would cut windfall taxes in the 2016 
budget and not impose new levies. 
    But he said last week that the offer was conditional on 
banks increasing lending, raising the prospect that if they did 
not, the truce would be off, hurting the lenders and damaging 
Hungary's investment outlook. 
    While he has not put a figure on how much he wants bank 
lending to rise under his conditions, he has previously said he 
would like private sector credit to grow by the 7-8 percent 
annually to keep economic growth above his target of 3 percent.  
    Most banks who responded to the questions from Reuters said 
they had seen some increase in demand for loans, but that this 
was driven mainly by a central bank funding-for-lending scheme 
that is scheduled to expire at the end of this year. 
    They gave no numbers for the expected amount or percentage 
increase. 
    "The impediment to lending definitely stems from demand 
rather than supply," the local unit of Belgian KBC Group 
 KBC.BR  said in an emailed response to Reuters' questions. 
    "Corporate investments are driven mainly by state subsidies 
and without subsidies investments are, in our experience, either 
delayed or kept at a level to cover amortisation." 
    Reuters asked the banks about their plans before Orban said 
the tax reduction was contingent on them increasing lending. 
    "Among large businesses, the higher volume of investments 
has so far not led to higher loan demand, a frequent cause of 
which is self-financing, or parent company financing in the case 
of foreign businesses," UniCredit said. 
    The banks said they expected some growth in lending this 
year, bolstered by the launch of new European Union projects and 
pent-up demand for home loans. 
    After Orban offered the truce to banks, Hungarian stocks 
rallied and Standard & Poor's upgraded the country's debt for 
the first time in years. 
    Orban's chief of staff said Hungary would stand by the deal 
"100 percent", adding however that the government was in talks 
with banks on how best to increase lending. 
 
 (Editing by Alison Williams) 
 ((gergely.szakacs@thomsonreuters.com; +36 1 327 4748; Reuters 
Messaging: gergely.szakacs.thomsonreuters.com@reuters.net)) 
 
Keywords: HUNGARY LENDING/