With delicious irony, Erste Bank (EBS:VIE) on Friday chose a big Vienna financial conference to announce details of plans to cut back in Hungary with the loss of a quarter of its branches and up to 450 staff.
Chief executive Andreas Treichl turned Capital Markets Day, an event that generally celebrates banking, into an occasion for delivering some bad financial news to Budapest.
It was a very public display of the anger felt in Austria at the Viktor Orbán government’s law forcing banks to shoulder some of their customers’ losses on foreign exchange loans. Erste’s shares fell 5.9 per cent in Vienna but that had less to do with its troubles in Hungary – which are now well-known – than the general market nerves. Rival Raiffeisen (RBI:VIE) was down 6.2 per cent.
Erste, Hungary’s second largest bank, is set to close some 43, or nearly a quarter of its 184 Hungarian branches in the next three months, and lay off 15 per cent of its staff citing what the bank calls “limited income opportunities” caused by the economic crisis, an “extremely high” banking tax and “immense losses” resulting from government measures to allow early repayment of forex mortgage loans at below market rates.
We play a key role in the economic and social developments of these countries [in central and eastern Europe]. Therefore, we believe it is our responsibility to provide our capital, our liquidity and our services – especially in difficult economic times – to the retail and corporate customers as well as to the sovereigns. To this end, we will shift resources from …non-core business areas.
Even though some unorthodox economic policy measures have been implemented in some countries, and other countries need more time to adopt economic stimulus measures, we remain loyal to the region.
With 17 million retail and corporate customers, Erste Group is present in those countries that in our view offer the best growth opportunities and are either members of the European Union or have chances of becoming members.
Erste said that this meant cost structures will be adjusted to match the economic reality. “This applies primarily to Hungary where a restructuring and realignment of the operations is under way (integration of subsidiaries into the bank, downsizing the branch network by 43 branches and reduction of staff by 400 – 450).”
Radován Jelasity, Erste Hungary’s president and chief executive, insisted in a statement that the bank was “still committed to the Hungarian market and customers.” But he said “adverse external economic conditions, a deceleration in the banking market and a considerable increase in risk provision requirements” have made restructuring and cost cutting “inevitable.”
Can Erste keep its 900,000 clients, as it seems to believe, with a slimmed-down network?
”This sounds like a lot [of branches]. Of course, they will keep the borrowers; I am not sure about current account holders. If there is a branch within 1 kilometre, they will surely keep the clients, [but] if further, it depends on the nature of the relationship,” Tamás Simonyi, banking specialist with KPMG in Budapest, told beyondbrics.
More to fundamentally, given that the punitive measures Orban has imposed on the banking sector in the past 18 months – who’s next?
“Some other banks are also closing branches, eg CIB [a subsidiary of Italy's Banco Intesa – Sanpaolo], but not on this scale. [But] I wouldn’t be surprised if others were thinking along similar lines,” says Simonyi, who adds that the combination of general economic woes, coupled with specific government measures have made Hungary the exception in the region as regards banking.
“The Hungarian banking sector is no longer part of the quite-healthy, North-CEE group of countries, Poland, the Czech Republic, and, to some extent, Slovakia. In fact, in terms of profitability, even the Bulgarian banking sector is better than Hungary’s. Some foreign banks are losing serious money in Hungary at present,” he says.
Bulgaria? Orban will bristle at the comparison. Hungary, which a decade ago saw itself as the region’s economic leader, is now finding itself likened to the laggards.
More trouble for Hungary’s banks, beyondbrics
Crisis hits central and eastern Europe, FT
CEE banks: Austria lays down the law, beyondbrics
ECB to Hungary: mortgage law stinks, beyondbrics
Full coverage of CEE’s Swiss franc debt woes, beyondbrics
Commerzbank: a chill wind for CEE, beyondbrics
CEE: Erste rattles the rest, beyondbrics
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