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Extra burdens on banks in Hungary

Extra burdens on banks in Hungary. Sumy, 24-25 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

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Extra burdens on banks in Hungary

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  1. Extra burdens on banksin Hungary Sumy, 24-25 May 2012 International Competition in Banking: Theory and Practice Gabor Szocs Chief advisor Hungarian Banking Association

  2. 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

  3. 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

  4. Listing rate of two banks listed on BSE .

  5. 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

  6. 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 2010. - 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!

  7. 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!

  8. 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!

  9. 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 bybanks - crossed by the announcement of final settlement in September 2011

  10. 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

  11. Change of the total assets (bn HUF)

  12. Household and corporate loans

  13. 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

  14. Thank you for your attention!Дякуємо за вашу увагу!Спасибо за ваше внимание!Gabor Szocs chief economist szocs.gabor@hba.org.hu

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