The Austrian bank wants to maintain its presence in Hungary despite the government’s tough measures against banks
Raiffeisen Bank International (RBI) wants to stay in Hungary despite having been hit hard by Prime Minister Viktor Orban’s combative stance towards foreign banks operating in the country, Karl Sevelda, who became CEO of the Austrian bank four months ago, said.
While the bank has already shrunk its Hungarian balance sheet by €1 billion since June last year—after being forced to accept loss-making exchange rates on hard currency loans it extended to its customers as well as punishing new taxes—it has a strong geographical and emotional connection to the country which is worth preserving, Sevelda told Emerging Markets.
“It’s our neighbouring country, it’s a partner in Austrian trade, there are a lot of Austrian investors in Hungary, and there’s a lot of emotion for Hungary in Austria. It was the first country where Raiffeisen went,” he said in an interview.
Herbert Stepic, who resigned as CEO of RBI in May, told Emerging Markets last month that RBI would be better off exiting Hungary if only it could find a buyer.
However Sevelda played down that possibility. “I’m not excluding any possibilities, but for the time being we want to stay,” he said. “But we are uncertain about the government’s plans.
“The government has surprised us in the past several times with new taxes and artificial exchange rates and things like that. They all have one thing in common, which is that they cost a lot of money.”
He also cautioned that non-performing assets were still a big problem for RBI, which is under pressure to increase its capital ratios. “I would like to say non-performing loans have peaked, but there was still a small increase this year,” he said.
RBI reported NPLs of 9.9% in June, up from 9.8% in December 2012. The figure has stagnated over recent months – it was 10% in September 2012 – partly because low growth meant there was a lack of fresh loans to replace the non-performing ones.
“We haven’t seen a lot of improvement [in the NPL figures],” he said. “We are now seeing increasing demand for financing but until the middle of 2013 there was practically no growth.”
While Hungary remains a headache for RBI, Sevelda reaffirmed the bank’s commitment to central, eastern and southern Europe, pointing to Russia, Poland, the Czech Republic, Slovakia and Romania as examples of markets where the bank is prospering.
But local regulators should beware of a “race” to force banks to increase capital and liquidity buffers, he said.
“In some of these countries the requirements are higher than in western Europe,” he said. “Local regulators need to realise that by over-regulating they can cut the supply of liquidity to the economy. With banking union and the single supervisory mechanism we hope to see more regulatory alignment, and maybe this race will stop.”