Economy 20 March 2017, 4:51pm

Did Hungary breach agreement with banks?

Portfolio

The European Bank for Reconstruction and Development (EBRD) responded amicably to the amendment of the Judicial Enforcement Act by the Hungarian Parliament by which - to Portfolio’s best knowledge - the country has violated its agreement signed with the EBRD on 9 February 2015. The bank has now offered co-operation with Parliament.

In the Memorandum of Understanding signed with the EBRD and Erste Bank on 9 February 2015, the cabinet had pledged that “further restrictions on foreclosures and evictions to be eschewed and the scope of the existing programme aimed at purchasing the properties of troubled retail borrowers is to be expanded, while the eligibility criteria are to be relaxed."

According to our preliminary assessment, the recent legislation change means Budapest fails to honour the MoU.

Earlier this month, Parliament passed a law amendment that raised the reserve price of properties slated for auction, i.e. banned property to be sold under market value.

This is the first time the EBRD commented on the issue, and its tone was friendly. The statement it released said it will work together with Parliament to examine the possible impacts of the new law and identify ways to mitigate any potential negative consequences.

The consequences of the measure include the dragging out of auctions and harm being done to non-paying mortgage holders and thus their creditors. The single goal of the law amendment seems to be not to have the local press churning out reports about auctions of people’s homes. In view of that, the EBRD was particularly friendly with the cabinet.

Its statement goes like this:

The EBRD and the Hungarian authorities have agreed to set up a working group to analyse the impact on the banking sector of the recent amendment of the Judicial Enforcement Act by the country’s Parliament and to identify ways to mitigate any potential adverse consequences.

The Government of Hungary and the EBRD signed a Memorandum of Understanding in February 2015 aimed at strengthening the country’s financial sector, improving its level of efficiency and profitability as well as boosting lending. Facilitating access to finance is key to support economic growth.

Under the Memorandum the Government of Hungary pledged to “promote a stable and predictable framework to support macroeconomic stability." The successful implementation of the Memorandum had positive impacts on the development of the economy and strengthened the local banking sector.

The EBRD regards the creation and safeguarding of a stable business environment which allows the financial sector to serve the economy and consumers as critical for sustainable growth. The Bank is committed to continue its fruitful cooperation with the Hungarian authorities and institutions such as the Central Bank and the Banking Association.