Hungary Targets Foreign Banks

Hungary is trying to gain more control over its banking sector. On Jan. 5, Hungarian media reported that Szechenyi Bank, which is partly controlled by the Hungarian government, has made a bid for the Hungarian branch of Austria's Raiffeisen Bank. Unconfirmed rumors also suggest that another Austrian bank, Erste Bank AG, could receive a bid from the state. The rumors come as Gyorgy Matolcsy, the head of the Hungarian central bank, announced that four major foreign banks could leave Hungary in the next year and a half.

In the coming months, Budapest will continue its efforts to put more foreign-operated banks in Hungarian hands. Rather than expropriating banks directly, the government is more likely to execute its strategy incrementally, pressuring banks to deleverage their assets so that Budapest and local companies can buy them out relatively cheaply. Mostly it will do so with the help of domestic businessmen closely tied to the government. This strategy is just one aspect of a broader evolution in Hungary's foreign and domestic policies, which increasingly deviate from those of the European Union. Countries in similar political and economic situations no doubt will notice if not emulate Hungary's behavior.