Press release of the European Commission

17 December 2015, 11:25 am

Brussels, 16 December 2015

The European Commission has concluded that Hungarian plans to grant state aid for the restructuring of Hungarian bank Magyar Kereskedelmi Bank Zrt. (MKB) are in line with EU state aid rules.

The Commission found in particular that MKB’s restructuring plan will enable the bank to become viable in the long-term and ensured that the bank’s owners contribute to the cost of restructuring while limiting the distortions of competition created by the aid.

Commissioner in charge of competition policy Margrethe Vestager said: “Today’s decision is an important step for the restructuring of MKB. Once it has cleaned up its balance sheet, MKB can focus on lending to Hungarian consumers and businesses, and follow its restructuring plan to become viable on its own in the long run.”

MKB has been fully state-owned since 2014 and is the fifth largest bank in Hungary with a market share of approximately 6% in Hungary. Since the beginning of the financial crisis in 2008, MKB’s financial situation gradually worsened mainly because it held a large portfolio of commercial real estate loans in foreign currency denomination, a large part of which became non-performing as a result of the crisis. In December 2014, the Hungarian resolution authority therefore decided to put the bank into resolution. As part of this process, the Hungarian resolution authority already sold some of the bank’s bad loans to private investors.

In November 2015 Hungary notified to the Commission an aid measure to deal with the remaining bad loans (a so-called “impaired asset measure”) and a restructuring plan for MKB. Hungary plans to transfer MKB’s remaining bad loans, which could not so far be sold, to an asset management vehicle at a price above market value. This will be financed by the Hungarian national resolution fund. MKB’s healthy activities including deposits will remain in the core bank which will continue operations as a viable going concern bank. Under the restructuring plan, after the asset transfer is completed, the core bank will reduce its cost structure and fundamentally change its corporate strategy to restore its long-term viability. In particular, MKB will refocus its core activities to lending to the real economy in Hungary instead of engaging in non-core and risky activities like granting commercial real estate loans or foreign currency loans. MKB will also enhance its corporate governance by improving its risk management to prevent the bank from making the same mistakes again.

MKB has no outstanding subordinated debt but the company’s shareholder (i.e., the Hungarian State) fully contributed to the cost of restructuring in line with burden-sharing principles. Finally, the Hungarian national resolution fund, which will become the sole shareholder of MKB after the asset transfer, will sell its shares through an open, transparent and non-discriminatory sales process.

On this basis, the Commission was able to conclude that the impaired asset measure and MKB’s restructuring plan were suitable for restoring the bank’s long-term viability without continued state support, ensured that the bank’s owners contribute to the cost of restructuring and limited the distortions of competition brought about by the aid, in line with EU state aid rules.

Background

EU state aid rules allow Member States to support banks during the crisis, provided that they have a realistic restructuring plan that enables them to become viable without continued state support, that their owners contribute to the cost of restructuring and that measures to alleviate the distortion of competition created by the state support are put in place (see 2013 Banking Communication and MEMO/13/886).

Please also see the Commission’s Policy Brief “State aid to European banks: returning to viability” on the application of EU state aid rules in the banking sector.

The non-confidential version of the decision will be made available under case number SA.40441 in the State Aid Register on the DG Competition website, once any confidentiality issues have been resolved. New publications of state aid decisions on the internet and in the Official Journal are listed in the State Aid Weekly e-News.

IP/15/6347