Miklós Bonta;
politics; Orbán government; Hungary; interview; banking system; Éva Várhegyi;
2023-10-22 14:35:00
Viktor Orbán’s old wish has come true: two-thirds of the domestic banking system now operates under domestic management, and a quarter of the sector is under the direct influence of the Prime Minister. Éva Várhegyi’s new volume published in the Magyar Narancs Könyvek series titled The Seizure of the Banking System shows how the government put the banks at its service.
The new book by the scientific advisor of Pénzügykutató Zrt. opens with this sentence: “It is not known exactly when the builders of today’s regime fell into temptation, when they woke up to the fact that the economic power inherent in the banking sector can be put to the service of politics.” At the time, when Postabank was nationalized, the first Orbán government could still refer to the bankruptcy of the popular retail financial institution. With some benevolence, the centralization of the savings cooperative sector could also have been considered socially reasonable in 2013-2014, if it had not been accompanied by a serious reduction in the rights of cooperative members. But the merger of MKB and Budapest Bank was absolutely not justified by the national economic interest: behind the costly purchases for Hungarian society were considerations of power. We talked about this with the researcher-economist who wrote the book.
His previous book on banks, Bankvilág in Hungary, was published in 2002. What has changed over the past two decades?
In my previous book, in which I reported on the developments of the decade following the system change, the costly bank consolidation, privatizations and the appearance of foreign financial institutions, I already touched on the relationship between banks and politics. My current volume focuses on the last 10-15 years, but rereading the old one brings back many things. One of the reasons for this is that some of the actors are the same, such as Sándor Csányi, who has been managing OTP since 1992, and is considered one of the most influential bank managers not only here, but throughout our region. More importantly, even at that time it was apparent that the banking groups of Western countries did not necessarily bring the political culture of their mother country to Hungary. In recent years, it has also become clear that they even form cordial cooperation with the Hungarian government, which is doing everything in its power to chase them down with discriminatory interventions that distort market competition. They also pretend that what Viktor Orbán is doing is unacceptable on the basis of the rule of law and that the governments of their home countries do not look favorably on it either. Their business interests, on the other hand, encourage them to try to obtain advantages even from the Orbán government, which is hostile to them, which their participation in the financing of state projects or subsidized loan programs can offer.
To what extent can their pursuit of compromise be said to be successful?
Eastern European markets generally provide an opportunity for Western banks to achieve relatively good profits compared to domestic ones. Although, for a few years after 2010, the bank tax, which was outrageous in international practice and also hit unprofitable financial institutions, the transaction tax and the mandatory final repayment meant a serious blow to them. But this was also overcome, and as of 2016, their profitability was more or less restored.
What was the reason for this?
Primarily the structure of the banking market in Hungary, the lack of competition reflected in prices. In our country, the market leader OTP dictates the interest rates and fees, which is also acceptable for other banks, since if they follow them, they will also achieve a satisfactory profit, and still enjoy a relatively high interest margin compared to Western Europe (loan and deposit interest difference between) and the advantage of service fees. By the way, in the loss-making years between 2010 and 2015, the foreign financial institutions stayed here because they could have withdrawn only if they found a buyer who would take over the banking operations together with their customers and receivables.
The Hungarian prime minister apparently does not like banks, especially those that are not part of his court.
It can be said of all political powers that they try to use the financial institutions that influence the operation of the economy for themselves, but the banking policy of the Orbán government that came to power in 2010 differs greatly from the usual practice. Not only did he announce that at least half of the banking sector should be partly nationally owned, but he also launched a total attack on the invasion of the banking system and the income of several financial institutions. From the beginning, they tried to put the legally independent Magyar Nemzeti Bank (MNB) at the service of political power. The incumbent central bank president’s right to propose members of the Monetary Council was revoked so that they could supplement the decision-making body with their own candidates. On the pretext of the Basic Law, a new law was introduced, which deprived the governor of the central bank of all his important powers, and assigned all the management powers of the MNB to the Monetary Council, which by then was mostly made up of government officials. In 2013, György Matolcsy, the minister of national economy at the time who shaped Fidesz’s economic policy, was installed as central bank governor, who also considered forcing growth as his goal in his new position, even if this went against the statutory duties of the MNB.
In his book, he writes about the current situation: “The Orbán regime, which has been operating since 2010, succeeded in its plan to take over the banking sector in barely a decade. He strengthened the government banks, which were hidden from the public and therefore suitable for financing friendly companies, and with the help of György Matolcsy, he put the central bank, which also included financial supervision, at its service. After this, the question rightly arises: how did the financial supervision operating within the bosom of the central bank carry out its inspection activities?
Financial supervision operates in central banks in several countries, so this in itself is not an unusual phenomenon. In my view, it contains a serious conflict of interest if the same institution has to serve price stability with its monetary policy and at the same time ensure the stability of the financial system. Moreover, here
From the outside, it is difficult to judge whether the MNB will act at the right time in the event of fluctuations in the capital situation of the financial institutions under its supervision, but at a central bank influenced by politics, the suspicion may arise that some small banks, such as Széchenyi Bank, which is close to the government, or the Matolcsy family The bankruptcy of Nevvekedesi Hitel Bank might have resulted in a smaller social cost with stricter controls.
One of the important milestones of Orbán’s “banking policy” was the inclusion of savings cooperatives and their subsequent integration into the bank holding. How did it go?
The importance of the savings cooperative sector was given by the fact that, as a rural financial institution, it was also available in smaller settlements where other banks did not open branches. In 2010, Viktor Orbán promised Sándor Demján, the president of the National Association of Savings Cooperatives, that the government would give them HUF 100 billion in capital subsidies to strengthen cooperatives. However, in 2013, Zoltán Spéder, the head and part owner of the FHB bank group, was authorized to launch what I call “operation savings” in my book, which eventually resulted in the disenfranchisement of the majority of cooperative owners and the reduction of their assets. The Hungarian state bought out the share of the German majority owner DG Bank, and then by creating an integration law that also created a way to liquidate the cooperatives, with the help of state institutions and various legal tricks, the majority of the more than a hundred savings cooperatives were forced out of their own umbrella bank, Takarékbank. They forced the 130,000 cooperative shareholders to amend the articles of association, with which they apparently voluntarily gave up their majority ownership for a fraction of the market price. The covert purpose of the entire campaign was to settle FHB Bank’s approximately HUF 30 billion capital shortfall, which arose after the 2008 international credit crisis. The “operation” was presumably directed by Zoltán Spéder, who was interested in strengthening his own bank and increasing its economic power, and who previously, as the second most important manager of OTP, had significant merits in the transformation of the financial institution into a modern bank. Later, however, his relationship with bank manager Sándor Csányi may have deteriorated, and therefore he left the financial institution in 2007 and began building his own economic empire. Spéder presumably had a common interest with Orbán in creating a bank group from the savings sector and other financial institutions that would be a serious competitor to OTP. This may explain why the Prime Minister’s Office, the state-owned Magyar Posta and Magyar Fejlsztési Bank helped Spéder to integrate the savings cooperative sector. In addition, the governing parties of the National Assembly also voted for the integration law, which allows for the displacement of savings and the elimination of share holders.
However, Zoltán Spéder soon fell out of favor, so he no longer had the opportunity to build up the bank holding.
There are only conjectures about why he fell out of the sugar fix and why he had to not only leave his bank, but also part with most of his media and real estate interests. It is possible that Viktor Orbán was already irritated by the economic and media empire brought together by Spéder, which is largely independent of the prime minister, and he may have feared that with such influence he could also aspire to political power.
Spéder’s downfall was preceded by Prime Minister Viktor Orbán’s break with Lajos Simicska, with whom the bank manager also maintained a good relationship. Spéder’s bank, FHB, had a capital shortfall of around HUF 30 billion, which – at least according to the public information – it wanted to remedy by issuing bonds to foreign investors in 2012. However, the bonds were eventually bought by the state-owned Hungarian National Asset Management, with the help of the management of MFB, which is connected to Lajos Simicska. In doing so, the bank not only flouted the EU ban on state aid, but also violated the Securities Act with the misleading issue information. The MNB’s political influence was reflected in the fact that the financial supervision fined FHB only years later, after the financier’s downfall.
How was the creation of the new bank group completed?
After the departure of Zoltán Spéder, the operation was entrusted to József Vida, close to the Prime Minister’s childhood friend, Lőrincz Mészáros. That’s when the dice turned: FHB did not absorb Takarékbank, but on the contrary, the latter absorbed the FHB group, which had already been strengthened with Magyar Posta’s branch network and financial enterprises under Spéder. Later, Vida was also relegated to the background, and MKB Bank, which had been purchased by the state and improved with the help of the central bank, and which was finally transferred to Mészáros during its re-privatization, excluding competition, and Budapest Bank, which was taken over by the state, were already integrated into the bank holding that also includes the Takarék group.
His power is also strengthened by the two government banks, Eximbank and MFB, as well as Gránit Bank, which was handed over to his son-in-law. Together with these, Viktor Orbán already controls a quarter of the banking sector, through which he can influence an even larger share of the economy. The economic power of the Hungarian Prime Minister concentrated in the financial sector is unique in Western market economies. What happened in the banking sector confirms János Kornai, who already stated in 2012 that “the main goal of the government led by Viktor Orbán was to seize power as completely as possible, and if this happened, to keep it in its hands as long as possible. Power is the goal, and all means are subordinated to this goal.”
How did the other main character, Sándor Csányi, a successful banker on the international stage, relate to all this?
He is certainly not happy about the creation of MBH Bank, and occasionally makes snide comments about it. For example, he raised the extent to which the ownership structure of the bank is not transparent, since it is not known who is hiding behind the private capital funds named as owners. He could also consider the establishment of the bank as an attack on his person, since the creation of the new large bank seemed suitable to break the economic power of Sándor Csányi. This can be dangerous for today’s politics, because in addition to the fact that the head of the bank manages the OTP banking group, which is the market leader in our country and has a significant position in our region, according to public data, he is the richest Hungarian, one of the largest landowners in Hungary, and his family business has prestigious agricultural interests. it has even broken into the growing health industry. Of course, swallowing OTP would be too big even for Orbán, who has gained almost full power, but MBH Bank, which is swallowing up more and more financial institutions with state support and growing like a small ball, may compete with it sooner or later.
2023-10-22 12:35:00
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