Extra burdens on banks in Hungary Sumy, May 2012 International Competition in Banking: Theory and Practice Gabor Szocs Chief advisor Hungarian Banking Association

Philosophies behind levying extra burdens on banks Dual challenge of Governments as a result of the crisis - Improvement of the stability of financial intermediary system - through regulations (e.g. Basel III) - Recovery of taxpayers’ money pumped into the banking sector - strong pressure on politicians According to some opinion, the sector should be „penalized” with extra taxes due to role of causing the crisis Potential usage of income deriving from extra charges - To fill up special funds for the case of any future crisis - To use for reducing the vulnerability of less developed countries

The extra burdens on Hungarian banks Contribution of credit institutions The extra tax for financial institutions (bank tax) FX rate setting Final settlement of FX based loans

L isting rate of two banks listed on BSE.

Contribution of financial institutions Since 2007 Based on loan portfolio includes interest state subsidy or interest equalization 2009: HUF 13,0 billion 2010: HUF 10,0 billion 2011: HUF 10,8 billion 2012: HUF 8,1 billion

The extra tax for financial institutions Hungarian banking sector remained stable No need for Governmental support! and still…. The extra tax accepted and first levied in Significant - Retroactive effect - Also for banks making losses - Not in line with EU guidelines or standards Complete refusal of negotiations with the market experts and with the EU, IMF and other international bodies!

The extra tax for financial institutions The size of the burden is based on the 31 Dec 2009 total assets figure - 0,15% below HUF 50 billion - 0,50% above HUF 50 billion (the average total assets of banks is close to HUF 1,000 billion, thus the real tax burden is close to the upper rate) HUF 182 bn in 2010, HUF 187 bn in 2011 and 2012 respectively (70% of the 2009 pre-tax profit) No special funds for the treatment of a future crises. To the Budget!

Profitability of financial institutions The size of the burden is based on the 31 Dec 2009 total assets figure - 0,15% below HUF 50 billion - 0,50% above HUF 50 billion (the average total assets of banks is close to HUF 1,000 billion, thus the real tax burden is close to the upper rate) HUF 182 bn in 2010, HUF 187 bn in 2011 and 2012 respectively (70% of the 2009 pre-tax profit) No special funds for the treatment of a future crises. To the Budget!

FX rate setting June 2011: acceptance of the Act Limits:no payment relief, value of real estate max. HUF 30 m, max. 90 days payment delay August 2011: starting of application - 3 years FX rate setting combined with a collection account (CHF 180, EUR 250, JPY 2) - interest rate of collection account: BUBOR - law attendance (3,200 from 1 million) - more popular constructions offered by banks - crossed by the announcement of final settlement in September 2011

Final settlement Political answer to cumulated strains All burdens shifted to banks!! Limit: FX rate at taking the loan is lower than the fixed rate (CHF 180, EUR 250, JPY 2) Sources: new HUF loans (25%), savings (deposits,money kept at households, money transferred home from abroad (70%), valuables sold (5%) Results: Portfolio -21,5%, clients -16% For clients being in a better than average situation. Losses made by banks: HUF 330 billion December 2011: agreement between HBA and the Government, 30% reimbursement from bank tax

Change of the total assets (bn HUF)

Household and corporate loans

Conclusion - The future IMF negotiations - the agreement is a must! EUR 15 bn standby credit line Reconciliation between political and economical elite Increasing governmental participation in economy Slow economic growth, stagnation and than slow increase of corporate lending (?) Newly positioned household lending (optimization instead of expansion) Stable banking sector

Thank you for your attention! Дякуємо за вашу увагу! Спасибо за ваше внимание! Gabor Szocs chief economist