Countries of the World/COUNTRYS.BIN/dp/0162/01621.txt

Text File | 1991-06-25 | 32KB | 571 lines

$Unique_ID{COW01621}
$Pretitle{365}
$Title{Hungary
Banking System}
$Subtitle{}
$Author{Hungarian Stock Exchange Courier}
$Affiliation{Embassy of Hungary, Washington DC}
$Subject{bank
banks
banking
capital
foreign
hungary
hungarian
financial
system
companies}
$Date{1990}
$Log{}
Country:     Hungary
Book:        Foreign Policy Basics
Author:      Hungarian Stock Exchange Courier
Affiliation: Embassy of Hungary, Washington DC
Date:        1990

Banking System

     At present 21 commercial banks function in Hungary (including INVESTRADE
BANK Ltd) and the following banks will start operation in the near future:
LEUMI BANK Ltd, the EAST-WEST BANK Ltd, and FIRST AMERICAN BANK IN HUNGARY
Ltd. Out of the banks, nine are jointly owned with foreign equity
participation. The number of specialized financial institutions is seven at
present.

     In respect of their numbers, savings cooperatives play an important role
in the banking system, their number being 260, the number of savings
cooperative members is 2 million, and their networks have 1800 units.

     The principal amount of the balance sheets of the business banking system
(excluding savings cooperatives) was 893 thousand million forints on January
1, 1987, and this increased by the end of 1989 to 1271 thousand million
forints (by 42%). At the start 60% of the principal amount of the balance
sheets was accounted for by the commercial banks, and by the end of last year
the share of the commercial banks was 83% since in the meantime the majority
of the former specialized financial institutions have also been changed into
commercial banks.

     In their resources, the most significant rise arose in the foundation and
accumulated assets: from 38 thousand million forints to 86 thousand million.
The increase of deposits was also significant, apporoximately 160 thousand
million forints, and that of profits 30 thousand million forints. The stock of
refinancing credits expiring at more than one year agrees with that of January
1, 1987, in which a role was played primarily by the doubling of the number
and target amounts of the World Bank programs, and the capital-substituting
credit actions granted to agriculture. The stock of short term refinancing
credits fell in three years by nearly 20 thousand million forints.

     The stock of the risk reserve fund was 8 thousand million forints at the
end of 1989. Approximately one half of the placements of the banking system
are for more than one year, approximately 40% expire within one year, and the
proportion of other receivables is approximately 10%. The largest share in
the over one year placements is represented by company credits, population
credits, and housing bonds, but the sum of capital investments (nearly 30
thousand million forints) is also an important sum. In short-term
placements the company sector is decisive, as well as the balance of foreign
exchange operations, placements in foreign currencies, forint and foreign
exchange cash.

     At present the picture is rather complex within the banking system in
respect of authorized activities. The large banks dispose of a full scope of
commercial banking authorization, which is complemented by foreign exchange
entitlements linked to trade as well as by entitlements to carry out banking
operations for the population. Although the medium-sized banks also keep
accounts, few of them are entitled to foreign exchange operations (General
Banking and Trust Co. Ltd., Post Bank and Savings Bank Cooperation Ltd., and
the joint venture banks) and they also handle banking operations for the
population to a different extent (the joint venture banks have no such
authorization with the exception of the CA).

     The standing of the OTP National Savings Bank is singular and particular,
since it incorporates the functions of a traditional and a modern savings
bank, a building savings bank, a superannuation bank, a credit bank, a
mortgage bank, a life insurance company, a buyer and seller of securities,
the organizer of lotteries, the buyer and seller of coins, etc.

     The authorized scope of activity of INVESTRADE Ltd. is also mixed
(commercial bank, trading house, investment bank).

     The specialized financial institutions form a special category within the
banking system, in respect of their financial weight, the circumstances of
their foundation, as well as the conditions for their operations. Placements
of over one year account for only 30% of the principal amount in their balance
sheets, and the majority of their activity is concentrated on short-term
lending to companies.

     Some banks only partially engage in activities for which they are
authorized. For instance, the large banks which all fought in previous years
for acquiring the right to carry out banking operations for the population, do
not practise these in essence, with the exception of the issue of securities,
through which they acquire resources for the financing of the company sphere.
Greater emphasis on short-term credits, which are more profitable and involve
less risk, are universally characteristic. Almost every bank also offers
credits of more than one year expiry to its clients, but there are banks,
e.g., CITIBANK, which grant only short-term loans.

     The following activities are either entirely missing from the banking
sector, or play only a marginal role: financing of consortium projects,
financing of company transformations, financing of commerce, factoring and
investment funds, investment companies, establishment of risk capital funds,
entrepreneurial credits, types of varied deposit accounts with high interest
rates, credit cards, cheques for clients.

     The network of branches is missing or has many gaps, and some important
banking activities, e.g. foreign exchange transactions, cannot be implemented
outside the capital city.

     Problems are caused by the under-development of the banking infrastucture
and the absence of integrated communication systems.

     The management of liquidity

     In the first few years the management of the liquidity of the banks did
not meet requirements. It was characteristic, particularly of the large banks,
that they regularly experienced liquidity troubles, in which cases they needed
assistance from the bank of issue. Causes of the shortcomings included: the
absence of a computer background, the lack of development of a system of
guidance for branches, the shortage of suitable staff, and in certain cases
ad hoc restrictive measures by the bank of issue, which did not allow time for
adjustment.

     Since last year the bank of issue has demanded from the commercial banks
quarterly and monthly liquidity plans, compelling them to deal with this
question properly. The large banks established their "liquidity councils",
which prepare quarterly and monthly liquidity plans and evaluate their
performance.

     The medium-sized banks and the specialized financial institutions had no
liquidity problems. The banks set as a condition of building up the network
of their branches the building up of computer links and the communication of
data per telex daily.

Forty Years' Experience

     The Hungarian Foreign Trade Bank Ltd. founded in 1950 is one of the
oldest actors in the Hungarian banking system. It was established to deal with
international payments turnover, primarily with foreign trade-related tasks.
From the late 60s HFTB has been most active in taking advantage of the
business opportunities appearing in the wake of the economic reform and
expanding with the intensification of East-West relations. Since the mid-80s
it has essentially diversified its range of activities.

     Side by side with strengthening positions in the conventional business
branches, emphasis has been laid on acquiring a considerable share in the
financing of domestic enterprises, guided by the principle that no bank can
be strong in international markets if it is not strong in the domestic one.

     Today the bank plays a major part in the banking mana