Since the 2008 global economic crisis, the banking sector has been facing new challenges and special extra taxes. In 2021, commercial banks contributed HUF 520 billion to Hungary's budget. On top of the bank tax, which was introduced in 2010 in a temporary manner, the special bank operating charges (OBA [Deposit Insurance Fund], BEVA [Investor Protection Fund], the Resolution Fund, supervisory fees etc.); the cost of offering two free cash withdrawals per month together with the financial burden of the transaction levy; the general corporate taxes, now a significant new obligation to contribute to the budget has emerged. Thus, the cumulative impact of these payment obligations is already threatening the ability of the Hungarian banking sector to boost economic development and act as the facilitator of capital flows. Thanks to EU regulations and the tax burdens imposed locally, the value of the banking sector focussed on Central Europe has already halved over the past ten years, relative to its global, US competitors.
The banking sector is closely intertwined with other economic actors at many different levels, and its success also determines the development of the national economy. Financial activities, which are increasingly becoming globalised and digitalised, require constant development, significant capital and the preservation of international competitiveness. Maintaining confidence in the banking sector is in the common interest of all economic players and decision-makers. Under the current environmental conditions, the domestic banking sector stopped generating profits in the first quarter of 2022. The Hungarian banking sector is opposed to the imposition of additional tax payment obligations.
The Hungarian banking sector now faces a double challenge: after the pandemic and in the shadow of the war raging in the neighbourhood, the goal is to maintain momentum in the Hungarian economy, and at the same time support the regional activities of Hungarian companies by helping them regain their competitiveness. The banking sector will only be able to perform these tasks if the credit moratorium is fully phased out without the imposition of extra tax obligations, and the interest rates of loans falling within the scope of the interest rate freeze scheme are aligned with commercial interest rate levels as soon as possible. The profitability of the Hungarian banking sector can only be assessed over a longer period of time. Over the past 12 years, the banking sector has achieved a ROE of 1%, without dividends. Even in the most favourable business environment, the banking sector has realised a single-digit profit, which it has typically used to improve and boost the intensity of business activity; i.e. no extra profit can be generated in a highly competitive banking sector with numerous players.
In an inflationary environment, rising revenues are matched with rising expenditures, and in financial markets the price of services is set by the market. Extra taxes imposed on financial service providers further reduce the efficiency and lending capacity of the banking sector, and oblige it to generate extra provisions. In the open EU money market, the extra financial burdens are already putting domestic banks at a competitive disadvantage in pricing, reducing the commercial profitability of the Hungarian banking sector, as well as the sector's contribution to the national economy. The extra financial obligations imposed on banks operating in Hungary lend an unequal advantage to foreign players offering cross-border services, as they can operate without extra burdens, in a less regulated and at the same time less secure way.
The banking sector can only repeat the outstanding performance it produced through difficult times, including the intermediation of government programmes and the provision of banking products, if it remains competitive. The rebuilding of the economy requires targeted government, development, foreign trade and central banking programmes, which can be effectively delivered to families and businesses by the banking sector. The foundations for Hungary's next decade and the country’s growth above the EU’s average can only be supported by a regionally competitive and stable banking sector that can offer the right answers to the challenges posed by digitalisation and green matters.
Budapest, 3 June 2022
The Hungarian Banking Association