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Hungary buys MKB Bank

July 26th, 2014

Analysts wonder if it makes sense to increase public ownership in the banking sector. A pro-government commentator welcomes the decision, which he believes will help the economy, while a left-wing columnist warns against spending public money to consolidate MKB.

On Thursday, the government announced that it is buying MKB Bank from its German owner, the Bayerische Landesbank for 17 billion Forints. Before the deal is completed, Bayerische LB will waive 270 million Euros in liabilities owed by MKB. Bayerische LB was ordered by the EU to sell its Hungarian branch after receiving a bail-out from Germany. Minister of National Economy Mihály Varga said that the purchase of MKB is a first step to increasing Hungarian ownership in the banking sector with a view to increasing the stability of the Forint and stimulating lending. He added that the government plans to consolidate and then privatize MKB within two years.

It is in our best national interest to increase Hungarian ownership in the banking sector, Tamás Nánási writes in Magyar Nemzet. The conservative columnist suggests that one does not need to construct conspiracy theories about “global background powers” to understand that foreign owned banks are more likely to disinvest in times of volatility. It is absolutely reasonable and logical from their perspective to stop lending and redirect resources to branches in those countries with most lucrative prospects, Nánási acknowledges. He quotes IMF statistics showing Hungary with the fourth highest rate of disinvestment among emerging markets. Hungarian owned banks do not have the option to swiftly syphon their money to other states, and thus even without assuming a degree of patriotism from their side, their willingness to finance the Hungarian economy is less susceptible to sudden changes. At the same time, there is some uncertainty surrounding the deal, Nánási admits. He mentions that despite the low price, BayerischeLB was relieved to get rid of MKB.

In Népszabadság, Iván Várkonyi is rather sceptical whether it was worth buying MKB. The left-wing pundit recalls that Bayerische LB has been trying to sell MKB for two years but no one was interested, therefore the deal may not be a bargain for Hungary after all. MKB’s unprofitability is to a large extent the result of the government’s decision to overtax banks, he suggests. Várkonyi fears that the government will have to bail out the bank, which will cost billions of Forints to Hungarian taxpayers. He also speculates that after a massive bail-out, MKB may be sold to investors allied to the government.

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