Hungary’s Attempts at Modernizing its Banking Industry Essay

Hungary’s Attempts at Modernizing its Banking Industry Essay

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Hungary’s Attempts at Modernizing its Banking Industry

It has been over a decade since Hungary has transitioned into the market economy. Its banking system has gone through numerous changes in order to accommodate an ever competitive world of financial innovation. Today, we see a Hungary that has adopted much of financial structure seen in Western Europe and whose banking sector is finally starting to see profits. Early transitional privatization saw an assortment of problems for state-owned banks including inadequate regulation and an agglomeration of non-performing loans. Reforms made through legislation in the last decade have helped alleviate the pressures on previously state held banks and lead the industry further through privatization. According to the latest findings by the IMF,

Hungary’s banking industry is nearly through the transitional process and well on its way to tightening the gap between itself and its Western European counterparts. In 1987, Hungary undertook its first major reform, separating the Hungarian National Bank and its commercial banking sector. Clearly, the goal was too proceed toward privatization. At the time, the state owned banks were flooded with a large volume of non-performing loans. Because foreign funded banks did not face the burden of bad loans, they had a competitive advantage against state-owned banks. This resulted in the “skimming off the more profitable clients” from the state owned banks and caused the legislation reforms of 1992-1994(1).

The government of Hungary subsidized many state owned “bad loans” in order to proceed with privatization. Not surprisingly, and encouraged by the government, foreign investors bought significant stakes in Hungarian banks. In fact, acco...

... middle of paper ...

... and divesting its remaining stakes in banks. Although the country is still largely based on cash businesses, reliance on credit cards and other banking related items continues to grow. With the Hungarian people ever more dependent on banking services, perspective for the industry’s growth is substantial. The progress made in the last ten years has been tremendous and the perspectives for the future look good. Hungary is now well on its way to reaching western economic development.

Works Cited:

1.Shader,Susan and Ingves, Stefan Financial System Stability Assesment, IMF MAY 3, 2002 (4)- P86 (5)- P86-88 (8)P26,P8-P16 Note: When paper references the IMF, statistics can be found between p25-60

2.Van Elken, Rachel Hungary: Economic Policies for Sustainable Growth IMF Washington D.C. 1998 (1)p37 (2)P37-45 3. (3),(6)

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