Bank Regulation in Hungary

Regulation of banks in Hungary envisages:

• state control;
• ensuring monetary & fiscal stability;
• compliance with requirements for risk & capital management;
• deposit insurance;
• ensuring protection of banking secrets & consumer rights.

Those seeking to set up a bank in the Republic of Hungary should keep in mind that control over financial markets is the exclusive prerogative of the MNB, the country’s main financial regulator. It’s also charged with management & mitigation of systemic risks in Hungary’s sector of financial services. Its other responsibilities include protecting consumers & overseeing insurance & capital markets.

Should a banking institution commit a breach, the MNB has a right to:

• require it to abide by banking & prudential regulations;
• request it to urgently submit a report;
• require it to prepare & implement an action plan;
• make a statement about a violation.

If a serious breach is committed, a supervisory commissioner can be delegated; also, some transactions can be restricted/prohibited. Those looking to establish a foreign bank’s subsidiary in the Republic of Hungary should be mindful of the fact that the MNB can urge a bank or its subsidiary to rectify the situation. In case of their refusal, the MNB can contact financial regulators in other EU countries & ask them to initiate disciplinary action against the offender. Unless any steps are taken, a matter can be referred to the EBA.

Takeovers Initiated by the Government

In case of a systemic crisis, a notification is sent to a minister charged with oversight of monetary regulation. Following that, the minister may either increase a financial institution’s capital or temporarily nationalize its shares. In the second case scenario, the government may take control of financial institutions that have registered offices in the Republic of Hungary.

Bankruptcy

A supervisory commissioner may be appointed in case of a bank’s bankruptcy. BoD members are unable to exercise their rights or carry out their duties for the duration of a commissioner’s appointment. Once appointed, a commissioner can exercise all of BoD members’ rights.

Banking institutions are required to come up with a recovery plan commensurate with the magnitude, nature & seriousness of the risks associated with their business model & financial services.

Capital Requirements

The prerequisite for creating a bank in the Republic of Hungary is the availability of a  subscribed capital of no less than two billion Hungarian forints. Foreign banks can set up subsidiaries in Hungary if their subsidiaries’ minimum capital is HUF 2 billion (an equivalent of $6,3 mln). To meet requirements for liquidity & solvency & offset risks associated with their activities, banking institutions must have enough financial resources. Ten percent of their yearly profits must be placed in general reserve as compensation for their operational losses.

A bank’s BoD if given forty eight hours to inform the MNB about: 

• suspending or terminating its bank’s activities;
• increasing/decreasing a bank’s subscribed capital.

Those seeking to create a bank in the Republic of Hungary should also keep in mind that they can face penalties for violating requirements for capital adequacy.

Insolvency

Instead of initiating a bankruptcy procedure, the MNB prefers to take emergency measures, such as:

• setting a timeframe for calculating a structure of capital;
• prohibiting some transactions;
• establishing a maximum interest rate;
• obliging a BoD to hold a GM;
• withdrawing consent to appoint personnel;
• urge a bank’s owners to take the required steps.

A BoD must immediately send a written notification of insolvency to the MNB. Either a bank itself or the MNB can initiate a liquidation procedure. If a decision is made to liquidate a bank & a court's decision on liquidation is published, a bank’s creditors have two months to file their claims.

What Future Holds

It’s expected that regulation of Hungary’s banking sector will focus on expansion of supervisory controls & improvement of risk management & liquidity of banking establishments. In their turn, Hungarian financial regulators will be trying to identify steps necessary to guarantee protection of bank clients & fair competition.