October 16, 2018 / 8:02 AM / in a month

UPDATE 3-Hungary scraps state support for home savings bank deposits

* Fast-track motion takes market participants off guard

* Eliminates state subsidies for such savings in future

* Aims to channel state funds to other housing programmes

* Lawmaker says companies earned “extra profits” on scheme (Updates with law passed)

By Gergely Szakacs and Marton Dunai

BUDAPEST, Oct 16 (Reuters) - Hungary’s government will end state subsidies for home savings bank deposits, saying the scheme is too costly, inefficient and had failed to encourage the construction of new houses.

The measure, approved in parliament on Tuesday, could affect banks that sell subsidised savings products, including Budapest-based lender OTP Bank and Fundamenta, majority-owned by Germany’s Bausparkasse Schwäbisch Hall.

After taking power in 2010, Prime Minister Viktor Orban imposed hefty taxes on banks to shore up state finances and introduced measures to help borrowers at the expense of lenders. But in a 2015 deal, he agreed to cut the bank tax and avoid further unilateral steps that could damage banks’ profits.

Scrapping the subsidy for home savings products is unlikely to make a big dent in earnings for the majority of lenders, but could hurt Fundamenta, Hungary’s biggest home savings bank.

A Reuters photographer saw about 20 clients waiting at a busy Fundamenta branch in Budapest to sign up for last-minute savings contracts before the subsidy is scrapped.

Fundamenta has yet to make a profit on the capital it invested in the product, CEO Bernadett Tatrai told news website portfolio.hu, and the company remained committed to the market.

“Scrapping the state subsidy creates market constraints, but that is not necessarily negative as it forces everyone to reconsider (strategies),” she told a conference.

OTP made 2.4 billion forints ($8.64 million) on the product last year, less than 1 percent of its overall profit.

“If the state subsidy thus saved is used to expand other home subsidy schemes, then this causes us no problems,” OTP chief Sandor Csanyi told reporters. “I don’t think this will affect the bank’s profits significantly.”

Austria’s Erste Bank and Dutch lender Aegon have incurred losses on the products for several years, according to company records. Aegon said it had stopped selling them.

CONSERVATIVE HUNGARIANS

The fast-track measure approved on Tuesday coincides with a general improvement in the Hungarian economy and a boom in lending, which has bolstered banking profits.

“Erste and Aegon probably don’t mind much,” Concorde Securities analyst Gellert Gaal said. “Fundamenta lost the most, while OTP doesn’t even notice.”

He added that Hungarians tend to invest conservatively, so home savings customers will probably turn to government bonds.

The legislation caught the market by surprise.

“This form of savings does not effectively support home creation objectives, while service providers are realising extra profits on part of the state subsidies,” lawmaker Erik Banki of the ruling Fidesz party said regarding the bill.

Banki said the main lenders have made profits of almost 60 billion forints ($215.52 million) on the scheme since Orban’s government took power in 2010. He said the scheme would cost the country more than 70 billion forints this year.

Hungarian real estate broker Duna House Holding said that scrapping the subsidy might cut volumes of the scheme to zero and could hurt its results in the short term.

OTP shares were up 0.9 percent at 1114 GMT, while Duna House added 5 pct, reversing a steep fall in early trade. ($1 = 277.7300 forints) (Additional reporting by Bernadett Szabo Editing by Andrew Heavens and Louise Heavens/Mark Heinrich)

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