Reuters: Hungarian banks getting closer to selling
Several banks in Hungary are working on selling non-performing commercial real estate loans worth hundreds of millions of euros in the coming months, with at least two major deals now in the pipeline, financial industry sources said. In total Hungarian banks hold around 800 billion forints ($3 billion) worth of such loans, which are weighing on their balance sheets and inhibiting fresh lending. The central bank launched a vehicle of its own, MARK Group, to buy such distressed assets from the banks but has yet to do so and there are signs that yield-hungry foreign investors instead might step in now that market conditions are improving.
The gap on prices which prevented deals being done in the past has narrowed thanks to an improvement in the real estate market and after banks had to make more provisions against their bad loans following the European Central Bank's asset quality review last year, the sources said.
"There are lots of international investors walking around town, looking at specific deals," one of the sources said. Top banks operating in Hungary include OTP Bank OTPB.BU, Austria's Erste ERST.VI and Raiffeisen RBIV.VI, Italy's Intesa SanPaolo ISP.MI and UniCredit CRDI.MI and Belgium's KBC KBC.BR. Foreign investors, such as other banks and private equity funds, are mainly interested in big corporate loans backed by real estate with their main focus on Romania, Hungary and the Adriatic region, one of the sources said. "There has been interest in such deals but the gap between what banks wanted for their assets and what the buyers were willing to pay was huge," one source said. "From the pricing side, demand and supply are getting closer," he said.
The Hungarian central bank vehicle designed to buy distressed commercial real estate portfolios from local banks may only begin purchases late this year as it has yet to win approval from European regulators, its chief executive said.
MARK Group, launched in November, has been in "very intensive" talks with the European Commission and the European Central Bank to iron out concerns over its operation, Csaba Kandracs said. The body can use up to 300 billion forints worth of central bank funds to buy such assets from commercial banks that they have been reluctant or unable to sell for years, weighing on their books and inhibiting fresh lending. "With the European Commission, the number one issue is the question of state aid," Kandracs told Reuters in an interview.
"As a result of the discussions, it has become clear to both MARK and the central bank that MARK shall be a body operating based on market principles ... offering a market price." Kandracs said it was unlikely that the concerns of the EU Commission and ECB would torpedo the project altogether.
"This is a new tool and the framework has to be discussed with the ECB," he said. "Since November, there would have been ample time for them to say that this cannot work like this at all and they have not done so."
The ECB is questioning why Hungary launched a "bad bank" after the crisis had subsided and no banks need rescuing. Hungary wants to allay such concerns as starting the vehicle without European backing would be an "impolite" step. But the protracted talks also involving the International Monetary Fund, which also pushed Hungary towards a market-based approach, have delayed the launch of the body at a time when market appetite for such assets is rising. Kandracs said MARK could make its inaugural purchase of a portfolio made up of 30 to 40 assets worth about 100 billion forints sometime late this year.