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Hungarian Minister Threatens Banks with Price Caps Over Rising Fees

Hungarian Minister Threatens Banks with Price Caps Over Rising Fees

Economic Minister warns banks to reduce account charges or face regulatory measures amidst rising bank fees.
In February, the inflation of banking fees in Hungary accelerated further, prompting both the government and the central bank to promise action against soaring charges.

Economic Minister Márton Nagy stated during a press conference that he is giving banks a one to two-week deadline to reduce their account fees, which he described as having 'exploded.' He emphasized that the increase in these fees has outpaced what could be justified by the passing on of costs related to household transaction fees, deeming the situation unacceptable.

The Minister reiterated that the government aims to create a minimal service package for families and pensioners.

Should an agreement with banks not be reached within this timeframe, he indicated that the government would take action.

Minister Nagy suggested that price caps could be one regulatory measure to curb unwarranted price increases and achieve a reduction in fees.

He has communicated to financial institutions that the government finds recent increases in retail banking charges unacceptable and has urged the Banking Association to commence discussions on expanding affordable basic account services.

The scale and necessity of the fee increases are indeed contentious.

According to data from the Hungarian National Bank (MNB), last year, the total profit of the Hungarian banking system reached 2007 billion forints, marking a historical record.

This profitability suggests that banks' current financial health does not warrant the present increases in fees.

Additionally, the central bank has also advocated for intervention in the pricing of banking services.

Varga Mihály, the newly appointed head of the central bank, mentioned this during a recent economic opening event hosted by the Hungarian Chamber of Commerce and Industry.

The state has other tools at its disposal aside from threats.

The government has already diverted hundreds of billions of forints in profits from financial institutions through special taxes.

Furthermore, last year, it raised transaction fees, which banks have been allowed to pass on to retail customers starting this January.

At the beginning of 2023, bank and service fees began to rise sharply, with reports indicating annual increases in retail charges of 10 to 13 percent.

This trend has been attributed to lenient pricing regulations.

Under current rules, banks are permitted to adjust annual fees based on the inflation rate of the previous year.

While annual inflation rates were 1 to 2 percent, fee increases were moderate.

However, during periods of rising inflation, retrospective pricing restrained price growth, whereas during periods of declining inflation, it has exacerbated it.

As a result, some banking fees could increase by as much as 15 percent last year, and this year, regulations allow for a 4 percent price increase.
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