Being a banker in Hungary involves great challenges and being exposed to almost constant stress tests by the government since it won power in 2010. There are, however, occasional bright spots for the industry, one of which is the “funding for growth” programme of the National Bank of Hungary (MNB), which has been running since June. We spoke to Peter Szenkurök, head of the Hungarian subsidiary of Oberbank AG, about the programme, as well as other matters concerning banking in Hungary.
Let’s start with the positive things by talking about the “funding for growth” programme. Could you please explain the essence of this programme to our readers?
In simplified terms, the National Bank of Hungary supplies the participating commercial banks with forint refinancing at a zero rate. These banks then assume the obligation of passing on the refinancing funds to their corporate customers at a maximum interest rate of 2.5 per cent. The aim of the central bank is to revive corporate financing in Hungary.
Are there international models for this?
It looks as though it was at least partly guided by a former measure taken by the Bank of England, namely its funding for lending scheme.
Who is the programme aimed at?
At small- and medium-sized enterprises. According to the EU definition these are companies that do not exceed certain limits: 250 employees, turnover of EUR 50 million and balance sheet total of EUR 43 million.
At an event of the German Business Club (DWC) attended by central bank governor György Matolcsy, you described his “funding for growth” programme as a great move that can advance the economy. Why do you take that view? What potential do you think the programme has in terms of promoting investments and creating jobs? What real effects could it have on economic growth?
First, this programme enables companies to finance themselves on a forint basis at low cost. We’ve observed that companies have largely restructured their existing loan financing, rather than using the additional financial leeway to make new investments. That’s related to the short deadlines for making use of the programme. The loan agreements need to be concluded by the end of this August at the latest. In other words, for the most part existing financing has been converted to forint financing, at a record low interest rate of a maximum 2.5 per cent. That eliminates exchange rate risks for companies and makes investments more predictable. Second, projects and investments become more profitable as a result of lower interest costs. In addition, the programme gets the corporate credit market in Hungary moving. Some large banks were evidently very reserved in terms of issuing loans in recent years. For a company with a forward-looking strategy it’s important, however, to have a reliable and strong banking partner by its side that proactively supports its projects and investments with financing. That in turn benefits the whole Hungarian economy and the labour market. However, it’s difficult to predict what specific impact that will have on economic growth. That’s why I don’t want to get involved in such speculation
At the same DWC event in mid-May you announced that you would participate keenly in the programme. What has come of that?
Following an intensive appraisal phase we’re participating in a substantive way in the programme. Luckily the refinancing that Oberbank Hungary applied for from the National Bank of Hungary was granted in full.
Why did you decide to get so involved? What do you hope to achieve with your participation?
It’s very simple. First, it’s a question of strengthening and promoting companies in Hungary. As a bank we should be open to such a measure. Supporting companies is ultimately our most important task. Since we’re convinced that the programme is a good thing, we don’t want to deprive our existing customers of this possibility. We’ve also been contacted by numerous potential new customers in connection with this programme.
Was it difficult to obtain the refinancing funds that you wanted? How large was the demand?
As far as I know the planned refinancing funds were oversubscribed several fold. That alone speaks for the success of this measure and, as a result, for central bank governor Dr. Matolcsy. Despite the enormous excess demand, Oberbank was lucky: it was granted the quota that it applied for.
Have all the terms and conditions for granting the loans been clarified or are there still question marks? Are there still certain uncertainties concerning the issue of the loans?
There were intensive talks between representatives of the National Bank of Hungary and the banks. An effective programme was worked out in a relatively short time. We’re already fully engaged in implementation of the programme with our participating customers. After several meetings with the central bank and general clarification by the central bank, there are currently no significant uncertainties concerning this credit programme.
What further improvements would you like to see?
I’ve already mentioned that this programme is largely aimed at eliminating exchange rate risks and lower cost “refinancing” of investments that have already been made and financed, or at least that is how our customers have largely used this support. It would also be good to see a measure aimed chiefly at new investments. However, that would require the programme to have a longer term. At present it is too short for many companies, in particular with regard to new investments.
How great is interest among your customers?
The interest was and is enormous. We can hardly keep up with all the inquiries. We aren’t having any difficulties placing the funding on the market, i.e. with our customers. We’re pleasantly surprised by the great interest.
What is the mood like among your customers in general?
Of course they have varying views. The majority of our customers, however, are in the fortunate position that they are looking ahead and acting accordingly. Oberbank takes the same approach.
What changes has the introduction and recent increase in the financial transaction tax led to at your bank?
The tax has kept us very busy internally. There were countless internal meetings, as well as with customers. There was also a great deal of correspondence with customers. We had to respond repeatedly to complaints and give additional explanations with regard to account statements. The new tax also gave us a lot of extra work in the IT field, especially because of the large number of things that needed to be reprogrammed. But what can we do? Laws have to be complied with.
What’s your view of the base rate policy of the central bank?
I don’t wish to comment on that. I know that bank representatives occasionally do so. However, there are other experts, in particular macro economists, who can do so better and earn money in that way.
How is the Oberbank Group faring overall?
Oberbank is present in Hungary, Austria, Germany, the Czech Republic and Slovakia with a total of 150 branches. We were able to increase our profits before tax by five per cent to EUR 132.4 million in the 2012 business year, following an excellent previous year’s result too. In particular, a multi-year comparison clearly shows that the Oberbank Group has developed considerably better than the banking market as a whole. We haven’t recorded any fall in earnings in the past years. Since 2006, i.e. even before the beginning of the financial crisis, banking crisis and sovereign debt crisis, we’ve been able to increase our earnings before taxes by a total of 60 per cent, while the banking market as a whole has recorded a significant decrease. In Hungary our business has constantly developed in a positive direction since our market entry in 2007 and we’ve been able to increase our loan and deposit volumes in particular, as well as our yields.
What strategy does Oberbank pursue?
Oberbank chiefly focuses on corporate banking for SMEs. Our core competence is in that segment. Based on our excellent earning position, we are also very well set up with own funds and core capital. With an own funds rate of 16.81 per cent at present, we meet the stringent requirements of Basel III even now and thus don’t need to restrict our lending, unlike some large banks that have already had to. Our business model is based on traditional banking, sustainable economic activity and long-term customer relationships. That makes us a predictable, stable financial partner offering maximum reliability to our customers.