The Hungarian banking system runs with the highest operative costs and collects the most revenues in interests in Europe. The regulator has now raised the issue. But rather than feeling saved – customers should run for cover. Whenever the government intervenes in banking on our behalf – we tend to end up worse off.
The following two charts are from the presentation of the central bank – now also financial regulator – about the latest sins of Hungarian banks.
The first depicts how Hungarian banks have the highest revenues from interests.
At the same time, operation costs of Hungarian banks are also the highest.
The profitability of Hungarian banks have been greatly undermined by the special taxes the Orbán administration levied upon them after they came to power in 2010. They did it with no particular excuse – it was for quick cash.*
Then they tried to save mortgage owners by the forced conversion and interest-free repayment of mortgages, that didn’t fail to help those who needed help the least. Some entered a government-enforced fixed interest period that is about to end now.
The resulting mortgage market was heavy on the fixed-interest side, resulting in the current, high-interest environment. Despite the Bank’s continuous rate cuts.
And this is the context for today’s public shaming – citing the high interests that resulted from previous regulations.
While Hungarian banks are by no means innocent or innovative – this kind of public shaming usually just serves as a prelude to tough negotiations, in which the government (pardon, central bank) gets what they want. And what they want is never consumer protection. Nor is it the health of the industry in the long run. They want cheap, quick shots before next year’s elections.
This time, they want to show a grandiose gesture of “protecting the little man” by negotiating lower interests for them. Keep an eye on the small print though. You can’t just forbid a bank to take profits – while keep piling on the new rules. Someone else is going to pay.
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* Note that banks in Hungary didn’t have to be bailed out. The financial crisis affected Hungary only indirectly, in the shape of the massive, Swiss franc denominated mortgage debts. Given that Hungary was never to join Switzerland as its 27th canton, this practice was hardly prudent. The regulators didn’t mind, and not just because they were under a different government. Regulation is always short-sighted.