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Hungarian state buyer snaps up soured mortgages in bank clean-up
October 13, 2017 / 12:35 PM / in 10 days

Hungarian state buyer snaps up soured mortgages in bank clean-up

* State-owned vehicle buys distressed mortgages from CIB

* Deal follows two major acquisitions by foreign investors

* MKK to bid for further deals, market highly competitive

By Gergely Szakacs

BUDAPEST, Oct 13 (Reuters) - Hungary is competing with foreign investors to buy non-performing loans from its banks as it pursues Prime Minister Viktor Orban’s policy of boosting state involvement in sectors such as banking, energy and retail.

Although Hungary’s economy has been strong, the central bank remains concerned by the level of non-performing loans on banks’ books relative to that of other Central European countries.

MKK, owned by Hungary’s state development bank, has bought a large batch of such mortgages from CIB Bank and is looking for more as banks step up a clean-up of assets which have weighed on their balance sheets since the 2008 financial crisis tipped tens of thousands of borrowers into default.

MKK said its deal, which it declined to put a value on, did not constitute state aid as it “is a market player using a validated market pricing model”.

“Naturally if a non-performing mortgage portfolio comes to market, we aim to bid for it, as we have done so far,” MKK told Reuters in an emailed response to questions. It declined to comment on how much it aimed to spend on such purchases.

Hungary’s solid economic growth and a surging real estate market are helping banks ditch these legacy mortgages and MKK’s purchase follows sales by Austria’s Erste Bank and Italian lender UniCredit to private investors.

Bank sector sources say the Hungarian unit of Austria’s Raiffeisen Bank and MKB Bank are also in the market with similar deals. Both lenders declined comment.

Prague-based distressed debt investor APS Holding and Sweden-based credit management firm Intrum Justitia have already bought bad mortgages in Hungary. Intrum has said it would be bidding for more deals.

Intrum spent about 62 million euros ($73 million) on the portfolio from Erste Bank Hungary, while APS has said the nominal value of the distressed mortgages acquired from UniCredit Hungary was nearly 139 million euros.

MKK, which had bought a smaller mortgage portfolio in 2015, said it financed the CIB transaction partly from debt. Banking sources say the deal was completed in the second quarter.

If the pace of clean-up seen in the first half persists and lending activity remains buoyant, Hungary’s central bank has said non-performing household loans could fall below 10 percent by the end of the year.

However, that would still be above a 3 to 6 percent average in the central European region, it said.

Demand for distressed assets has also been fuelled by investors seeking higher returns amid record-low interest rates and the clean-up is seen helping banks boost lending.

K&H, the local unit of Belgium’s KBC, Hungary’s second-largest lender by 2016 assets, expects total mortgage lending to increase by up to 30 percent, to about 700 billion forints ($2.69 billion) this year, above earlier projections.

The central bank also sees continued expansion in retail lending, although the overall growth of the market is expected to lag the central European average.

Tibor Foldi, chief executive of property developer Cordia says higher lending will support demand for new apartments as such buyers are usually crowded out by cash buyers and investors in the first phase of an upswing.

“Given that supply is continuously increasing, these buyers have a growing chance of finding an apartment, so we still see a very big potential in that segment,” he said. ($1 = 260.6 forints) ($1 = 0.8467 euros) (Reporting by Gergely Szakacs; editing by Alexander Smith)

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