Top Manager in Discussion: András Kozma, CEO of Commerzbank Zrt.
Commerzbank is one of the few banks that are faring well even in these difficult times. CEO András Kozma explained to The Budapest Times why that is.
“The measures taken do not serve Hungary’s interests as unequivocally as intended.”
–András Kozma,
CEO of Commerzbank
How do the state measures on foreign-currency-denominated loans affect your bank?
Only minimally because we have virtually no private customers. The new measures of the state apply exclusively to private customers whose homes serve as security for FX loans. However, we will also be affected indirectly through the market and the negative mood resulting from the measures.
As a bank that is virtually unaffected, what is your opinion of the measures?
I believe that the price that the country will have to pay for it certainly exceeds the advantages. The aim is understandable but the response is not adequate. That is all the more so because it is primarily the good borrowers, who could perhaps even have repaid their FX loans without such state assistance, who will benefit. There will certainly be follow-on effects. For good borrowers the state’s new measures come as welcome assistance, while they barely help other borrowers at all. The banks are left with a massive additional burden. If a lot of customers make use of the new possibility it will surely have an impact on Hungary’s credit worthiness. Of course there can also be positive effects. If the volume of FX loans sinks overall, then Hungary will naturally be less exposed to the negative consequences of exchange-rate fluctuations. However, the high capital losses of some banks will not be without consequences for the country. The measures taken do not serve Hungary’s interests as unequivocally as intended.
What better alternatives could there have been?
Drawing up such ideas is not my task but other suggestions have been put forward in the press. Perhaps instead of fixing the exchange rate it would have been better to fix the original benchmark interest rates and margins. That could have ensured that the burden on borrowers was kept within tolerable bounds. Moreover, it would not have been open to legal challenges to such an extent and would not have attracted as many negative international headlines.
What effects will the measures have on the banking market?
We will see a re-division of the private customer market. Banks with a relatively small portfolio of FX loans will be among the winners. Because of their different interests, the banks have not put up such a united front to this latest intervention in their business as they did when the bank tax was introduced.
Who is responsible for the excessive awarding of FX loans?
I can remember well the time in the middle of the 1990s when the private customer business was very much secondary in the banking sector. All foreign banks were chiefly interested in business customers and saw big opportunities there. For bank employees, working in the private customer field was almost regarded as working in the background. Then the first Orbán government revived the private customer business by offering state-subsidised home loans. Suddenly the banks took great interest in the private customer business. Moreover, banks suddenly became aware of the possibility of FX loans. At that time they were even cheaper than the state-subsidised home loans. The main shift came when the new Socialist government for budget reasons desisted from giving state subsidies for home loans. That didn’t worry anyone at the time because FX loans were available. In other words, several factors contributed to the situation. As it happens, banks with a relatively small market share and fewer forint resources but better access to foreign-currency funds led the way when it came to granting FX loans. The other banks then jumped on the bandwagon for competitive reasons. The banks that led the way at the time were precisely the banks, mainly with Austrian parents, that are complaining most vocally today.
It seems a form of justice for market shares that were artificially acquired to be lost…
Yes, certainly. However, I don’t think that the banks should be held solely responsible. Nobody was forced to take out such loans in the years of the FX loan boom. I don’t agree with shifting all blame to the “evil banks”. There was a great deal of speculation in terms of financing homes. Of course it makes a difference whether we are talking about the sole home of a family or the third home or a speculative investment of an owner. There should be greater differentiation. If the complaints of the banks are upheld legally, then all taxpayers will have to pay for reckless borrowers and wily speculators. I don’t think that would be fair.
Does the increase in the costs of foreign-currency-denominated loans not also pose problems to your business customers?
Unlike private customers, business customers are predominantly professional economic actors with financial expertise. There isn’t such an asymmetry in terms of their informedness. Generally FX loans in their case are covered by corresponding revenue income or the inherent risks are kept within bounds through hedging. Generally business customers are interested in good-value, foreign-currency financing with a manageable risk, rather than speculating. Business customers predominantly took out euro-based loans. Here there have not been such drastic exchange-rate changes.
In other words your business customers do not have problems in this respect.
If they have problems, then it is chiefly because of lack of demand and the general economic situation, rather than because of exchange-rate fluctuations primarily. If demand is sufficient, then they will find the necessary funding. If demand has led to acceptable prices, then they can afford the costs of financing. Companies tend to end up in a financial predicament because of insufficient demand rather than because of exchange-rate fluctuations.
What is the mood like among your business customers?
Production companies, particularly those that export, are faring very well, regardless of whether they are Hungarian or foreign companies. Firms that produce solely for the domestic market and service-providers are not doing so well.
Despite the healthy figures of production companies, the Hungarian economy is not growing to a significant extent.
That is chiefly because of the lack of orders from the public sector. The production sector is growing well. Domestic consumption is not much worse than in other Central European countries.
There have been accusations from opposition quarters that the state is economising too much.
I think that the government’s intention of reducing the high sovereign debt is correct and understandable. I think, however, that communication should be improved. We need consultations instead of more surprises. That would surely also be in the interests of the state. If there were better bilateral communication, the risk costs for state financing would certainly also be lower. Currently we have the strange situation that the debt of the state is decreasing but risk premiums are not falling. Because of inadequate communication the successes in reducing the level of debt are simply not being felt.
How do things stand with the special tax on financial institutions?
That is also one of the topics where there is little transparency. I assume that the special tax will remain. If you believe some announcements made by the state, it will be lowered and will come closer to the level of the bank tax in EU countries. But we do not know exactly. Incidentally, I don’t regard the bank tax as such as a great tragedy. If things are going well it shouldn’t pose a problem to the banks. However, if banks are hit simultaneously from several sides by the bank tax, FX loan measures, flagging economy and uncertainly about the future, then some banks may wonder why they are doing business in Hungary. Please note, that doesn’t include Commerzbank. Some banks are understandably asking themselves why they should go to great effort to win market shares in Hungary, when the economy is not prospering and unpleasant surprises can be sprung on them by the state. Naturally that lowers the motivation of the parent companies to assist their Hungarian subsidiaries in achieving further growth. It seems to me that the government doesn’t understand that connection properly.
Do you think it could lead to some banks leaving the Hungarian market altogether?
I regard that concern as unfounded for now. However, there will certainly be an impact on the capital provision of the economy, Good customers will not be affected. They continue to be sought after and will always manage to obtain financing. But what about average and below-average customers? With banks inevitably more cautious they will find it considerably more difficult to obtain financing, and of course that will have an impact on the national economy. That’s why I find the many negative signals and inadequate communication of the government troubling.
Is it all just a question of communication?
Not everything of course but to a significant extent. The government has taken many measures that are fundamentally positive for the economy. Think of the flat tax or the reduction in the corporate tax. Those measures are good for transparency and reducing the black economy. The problem, however, is that they are not what comes across abroad. Hungary’s image there is rather negative owing not least to the government’s suboptimal way of communicating. When I speak with German customers, then the first topic is the special taxes, regardless of whether they are directly affected or not. A lot of them have heard about the nationalisation of the private pension funds – naturally not in as much depth as such a complex issue requires – and many of them have also heard of the political measures of the Orbán government. They have the impression of a country where taxes are raised, where property is not secure and which is heading towards a dictatorship. Who would gladly invest in such a country? The positive measures of the government need to be communicated better and the negative measures explained better. The government should take the trouble to do so in the interests of the country.
How is your bank faring?
Despite the special taxes, which cost us EUR 4-5 million yearly, we remain profitable. We have had a good year so far and I am confident about our prospects. It sounds paradoxical but in a certain sense the enormous pressure on economic actors has been beneficial for us. That pressure puts banks’ customer relations to the test. Precisely at such times customers expect increased flexibility, swift decision making and individual service from their bank. Larger banks in particular are less and less capable of providing those. Risk avoidance is now of greater importance to them than satisfying individual customer needs. Their strategies are focused primarily on the reduction or at least containment of their negative loan portfolios, rather than on growth. For that purpose customers are pigeonholed. With several tens of thousands of customers of course it is impossible for all customers to feel good in their given category. Good customers, who can change more easily, in particular soon get tired of such a lack of appreciation of their individual needs and look around for a more attentive bank. At Commerzbank we do not pigeonhole customers. Each customer receives individual service. We concern ourselves in detail with their needs and would like to grow with them in the long term. The nice thing is that word gets around. Recently customers have increasingly come to us from our competitors because they are dissatisfied with the service they have received there. As a relatively small bank we are capable of a flexibility that many of our larger competitors cannot or do not wish to provide. We also have many years of experience in providing the appropriate service to customers, in particular to small- and medium-sized enterprises.
