Prospective State Sale of MBH Stake Amidst Shifting Landscape in the Hungarian Banking Sector
The Hungarian government considers a stake sale in Magyar Bankholding as regional banking trends indicate profitability amidst a challenging lending environment.
The Hungarian banking sector is poised for a significant transaction as national economy minister Márton Nagy confirmed that Magyar Bankholding (MBH) is exploring ways to increase its market presence, potentially allowing the state to sell its current 20% stake.
This development takes place against a backdrop of changes in the Central and Eastern European banking industry, where profitability has reached record levels despite a decline in GDP-weighted balance sheets due to high interest rates.
According to recent research, the balance sheets of Central and Eastern European banks have contracted over the past year, largely attributed to persistent high-interest environments.
While consumer lending shows signs of recovery, corporate lending still reflects the economic challenges expected to persist into 2024. Despite these difficulties, banks have maintained their loan portfolio quality, with non-performing loan rates declining regionally from 2.8% in 2022 to 2.4% in the first half of 2024. Hungary boasts an even lower rate, which has decreased from 2% to 1.7%.
The regional banking system's return on equity (ROE) improved from 17.3% in 2023 to 18.5% in the first half of 2024, with Hungarian banks leading in profitability.
Excluding profits contributed by OTP Bank’s regional holdings, the consolidated result of 2,007 billion forints results in a record-breaking 1,632 billion forints profit with a ROE of 19.9%.
The MBH Bank, which is the minority stakeholder under consideration for state sale, achieved a corrected after-tax profit of 236 billion forints in 2024, a 3% decline from the previous year but demonstrating a 21.2% ROE.
Despite these strong results, competition for regional banks has tempered in recent years.
Transactions have generally occurred at book value or slightly above, contrasting with the six to seven times book value seen from 2004 to 2008. From 2017 to 2023, the number of market players in the region decreased by 21%, with Hungary experiencing the largest contraction, reducing from 33 banking groups in 2017 to just 19 today.
The unique market dynamics have resulted in Hungary having the fifth most banks among countries with similar populations, with the Czech Republic currently operating with 14 banks.
In 2024, Hungary has seen only one transaction, which involved MBH Bank purchasing a majority stake in a housing savings bank from Italian Generality, amid a tranquil market activity that indicates there’s no pressing need to sell.
Notably, recent years have witnessed the lowest level of banking transactions, with just nine deals completed in the past year compared to 25 in 2021. The number of loss-making financial institutions also rose from one to three in 2023, despite record profits in the sector.
OTP Bank has emerged as the most active buyer in the region, completing five transactions in the last five years and participating actively in regional consolidation.
The bank is now positioned among the top five players in markets where it operates, following divestments in Slovakia and Romania.
The potential sale of the state's minority stake in MBH may not lead to an advancement for the bank in terms of market position, as it would play a passive role in this transaction.
Reports indicate that the MBH Bank is considering an initial public offering in collaboration with CitiGroup, although efforts thus far have not substantially bolstered its stock market performance.
As of the latest information, the bank’s shares closed at 6,500 forints, representing a price-to-book value of 1.9%.
The potential market value of the state's 20.01% stake, based on last year’s MBH profits, could be estimated at 430 billion forints.
However, the final pricing of the stake would depend on various factors beyond just the profit figures.
The consolidation trends are not limited to banking; the insurance market is also under scrutiny.
Although insurance premium income has shown growth, the insurance penetration remains stagnant at just 2% of GDP in Hungary, indicating significant room for expansion.
Experts suggest that further consolidation in the insurance sector is necessary, as demonstrated by the singular business transaction in the past year.
The market dynamics indicate that acquisitions tend to be more successful when the buyer already has a substantial client base, aligning with increasingly stringent regulatory requirements.
This development takes place against a backdrop of changes in the Central and Eastern European banking industry, where profitability has reached record levels despite a decline in GDP-weighted balance sheets due to high interest rates.
According to recent research, the balance sheets of Central and Eastern European banks have contracted over the past year, largely attributed to persistent high-interest environments.
While consumer lending shows signs of recovery, corporate lending still reflects the economic challenges expected to persist into 2024. Despite these difficulties, banks have maintained their loan portfolio quality, with non-performing loan rates declining regionally from 2.8% in 2022 to 2.4% in the first half of 2024. Hungary boasts an even lower rate, which has decreased from 2% to 1.7%.
The regional banking system's return on equity (ROE) improved from 17.3% in 2023 to 18.5% in the first half of 2024, with Hungarian banks leading in profitability.
Excluding profits contributed by OTP Bank’s regional holdings, the consolidated result of 2,007 billion forints results in a record-breaking 1,632 billion forints profit with a ROE of 19.9%.
The MBH Bank, which is the minority stakeholder under consideration for state sale, achieved a corrected after-tax profit of 236 billion forints in 2024, a 3% decline from the previous year but demonstrating a 21.2% ROE.
Despite these strong results, competition for regional banks has tempered in recent years.
Transactions have generally occurred at book value or slightly above, contrasting with the six to seven times book value seen from 2004 to 2008. From 2017 to 2023, the number of market players in the region decreased by 21%, with Hungary experiencing the largest contraction, reducing from 33 banking groups in 2017 to just 19 today.
The unique market dynamics have resulted in Hungary having the fifth most banks among countries with similar populations, with the Czech Republic currently operating with 14 banks.
In 2024, Hungary has seen only one transaction, which involved MBH Bank purchasing a majority stake in a housing savings bank from Italian Generality, amid a tranquil market activity that indicates there’s no pressing need to sell.
Notably, recent years have witnessed the lowest level of banking transactions, with just nine deals completed in the past year compared to 25 in 2021. The number of loss-making financial institutions also rose from one to three in 2023, despite record profits in the sector.
OTP Bank has emerged as the most active buyer in the region, completing five transactions in the last five years and participating actively in regional consolidation.
The bank is now positioned among the top five players in markets where it operates, following divestments in Slovakia and Romania.
The potential sale of the state's minority stake in MBH may not lead to an advancement for the bank in terms of market position, as it would play a passive role in this transaction.
Reports indicate that the MBH Bank is considering an initial public offering in collaboration with CitiGroup, although efforts thus far have not substantially bolstered its stock market performance.
As of the latest information, the bank’s shares closed at 6,500 forints, representing a price-to-book value of 1.9%.
The potential market value of the state's 20.01% stake, based on last year’s MBH profits, could be estimated at 430 billion forints.
However, the final pricing of the stake would depend on various factors beyond just the profit figures.
The consolidation trends are not limited to banking; the insurance market is also under scrutiny.
Although insurance premium income has shown growth, the insurance penetration remains stagnant at just 2% of GDP in Hungary, indicating significant room for expansion.
Experts suggest that further consolidation in the insurance sector is necessary, as demonstrated by the singular business transaction in the past year.
The market dynamics indicate that acquisitions tend to be more successful when the buyer already has a substantial client base, aligning with increasingly stringent regulatory requirements.
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