Case Study on Payouts Hungary Presented by: Dr. András Fekete-Gy ő r

1. www.iadi.org Case Study on PayoutsHungary Presented by: Dr. András Fekete-Győr National Deposit Insurance Fund of Hungary Monday, December 8, 2003

2. Case Study on Payouts - Hungary www.iadi.org Agenda • Overview of the legal frame • Work-flow of the Fund’s action • Preconditions to an efficient reimbursement • Legal issues • Practical issues • Technical issues • Operation of the payout software • Supplementary information

3. Case Study on Payouts - Hungary www.iadi.org Overview of the regulatory framework

4. Case Study on Payouts - Hungary www.iadi.org Work-flow of the Fund’s action

5. Case Study on Payouts - Hungary www.iadi.org • Preconditions to an efficient reimbursement • Legal issues • Obligation to reimburse: • unavailability of deposits during 5 working days and/or • withdrawal of the banks licence (closure) by the Supervision • Coverage limitper depositor per bank: • HUF 3.2 million (€12,400) • co-insurance: 10% • reimbursement limit: HUF3 million (€11,500) • Eligibility: • natural and legal persons • excluded depositors • trust accounts, joint deposits

6. Case Study on Payouts - Hungary www.iadi.org • Preconditions to an efficient reimbursement • Legal issues (cont’d) • Insured products • registered deposits (Deposit Register, 1999) • bank obligations (bonds), CDs since January 1, 2003 • Secrecy, confidentiality • unrestricted access to the deposit records in case of reimbursement • Timeframe • Start of reimbursement within 15 days after the closure • End of reimbursement within 90 days (might be extended twice by 90 days respectively) • Interest payment: no longer than 15 days after deposits became frozen • Others • set-off against expired debts • deposits used as collateral • advance payment

7. Case Study on Payouts - Hungary www.iadi.org • Preconditions to an efficient reimbursement • Practical issues • Quality of records • Insufficient quality might cause complaints and delays • Regular examination of the member’s deposit record keeping • Improvements enforced Reimbursement procedure • Access to the records right after closure (manipulation) • Internal regulation of reimbursement procedure (adjusted to each case)

8. Case Study on Payouts - Hungary www.iadi.org • Preconditions to an efficient reimbursement • Practical issues (cont’d) • Claim declaration • Inaccurate data in the bank’s records • Selection of preferred method of payment • Methods of payment • Transfer to a requested bank account • Cash withdrawal by Deposit Insurance Card (Hungarian innovation) • Cash delivered (postal transfer) • Agent bank

9. Case Study on Payouts - Hungary www.iadi.org • Preconditions to an efficient reimbursement • Practical issues (cont’d) • Communication • Mandatory press releases • after closure • before start of payout • Telecommunication channels • internet: crisis communication site (hyperlinked to NDIF’s home page) • automatic voice-mail information • hot line • Direct mail • on the availability of the money • settlement enclosed • reminders • Complaints, inquiries, litigation • direct mail, e-mail, help desk • litigation (none in conjunction with deposit payout)

10. Case Study on Payouts - Hungary www.iadi.org • Preconditions to an efficient reimbursement • Technical issues • Outsourced partners employed in • communication • IT (principally operated by own staff) • Accuracy of reimbursement is backed up by IT solutions • two more data of the depositor other than the name • precisely defined procedures and pre-audited software • highly automated verification, reconciliation process and calculations • automated preparation of settlements, letters, etc. and money transfer • IT solution to manage inquires and complaints

11. Preconditions to an efficient reimbursement Operation of payout software

12. Preconditions to an efficient reimbursement Operation of payout software (cont’d)

13. Preconditions to an efficient reimbursement Operation of payout software (cont’d)

14. Preconditions to an efficient reimbursement Operation of payout software (cont’d)

15. Preconditions to an efficient reimbursement Operation of payout software (cont’d)

16. Preconditions to an efficient reimbursement Operation of payout software (cont’d)

17. Preconditions to an efficient reimbursement Operation of payout software (cont’d)

18. Preconditions to an efficient reimbursement Operation of payout software (cont’d)

19. Preconditions to an efficient reimbursement Operation of payout software (cont’d)

20. Preconditions to an efficient reimbursement Operation of payout software (cont’d)

21. Case Study on Payouts - Hungary www.iadi.org • Supplementary information • Deposit Insurance Card (DIC) • Agreement with the largest bank network and the postal system (ATM’s and POS outlets) • Depositors wanting reimbursement through DIC get a ‘blank’ (debit) card with PIN at filing the claim, sign DIC contract • The DIC will be activated when the claim is successfully verified and reconciled with the records • Depositors are notified via mail on the availability of the money • The DIC is usable within 90 days (withdrawal in installments is possible)

22. Case Study on Payouts - Hungary www.iadi.org Supplementary information Bank-crises handled by NDIF • 1993Bankruptcy of a savings co-operative (Heves and Vicinity)NDIF’s activity:pay outRecovery: through liquidation (recovery rate: 0 p.c.) • 1996 Open bank assistance to Iparbank’s (a small bank) silentself-liquidationNDIF’s activity: stand by credit in order to satisfy all creditorsRecovery: by selling the assets of the bank (recovery rate: 90 p.c.) • 1998-99 Open bank assistance to (recapitalization of) the insolvent Realbank(with a significant share in retail market)NDIF’s activity:rescue operation faileddue to hidden losses, sopay-out after closureRecovery: through liquidation (recovery rate: about 60 p.c. incl.the lost capital) • 2000Bankruptcy of a credit co-operative (Rákóczi)NDIF’s activity: pay out via money transfer or OBA debit cardRecovery: through liquidation (expected recovery rate: 60 p.c.)