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Hungary Financial Institutions
The economic reforms of the mid- to late 1980s resulted
in a
restructuring of the country's financial institutions. Up
until
that time the institutions included the Ministry of
Finance; the
Hungarian National Bank; five major and several smaller
commercial banks, some with foreign partners; the National
Savings Bank; small venture-capital institutions; and a
nascent
insurance industry.
The Ministry of Finance oversaw the financial and
banking
system and the insurance industry. The ministry also
supervised
foreign-exchange policy and concluded international
financial
agreements through the Hungarian National Bank.
In 1987 Hungary unveiled a new, two-tier banking system
consisting of banks that were supposed to function as
genuine,
profit-making credit institutions. Before the reform, the
Hungarian National Bank dominated the banking system,
functioning
as the central bank, the bank of issue, and the main
commercial
bank. All banks acted as agents of the state, and their
lending
decisions were based not on profitability but on
government
guidelines geared toward implementing the economic
five-year
plan.
The 1987 reform stripped the Hungarian National Bank of
its
commercial-banking function, but it remained the country's
bank
of issue and its central bank. In its role as the bank of
issue,
the Hungarian National Bank established the national
payment and
accounting system, promulgated rules on money circulation,
coordinated Hungary's relations with international
financial
institutions, and determined foreign-exchange rates. As
the
central bank, the Hungarian National Bank regulated the
money
supply using credit policy, interest rates, obligatory
reserve
requirements, and other means. The Hungarian National Bank
was a
member of the International Bank for Economic Cooperation
and the
International Investment Bank, both in Moscow. It was also
a
shareholder in the Bank for International Settlements in
Basel,
Switzerland, and owned the Hungarian International Bank in
Britain and the Central Wechsel- und Creditbank A.G. in
Austria.
The reform created five major commercial banks: the
Hungarian
Foreign Trade Bank, the General Banking and Trust Company,
the
Hungarian Credit Bank, the National Commercial and Credit
Bank,
and the Credit Bank of Budapest. They were all
Hungarian-owned
joint-stock companies and were licensed to perform a full
range
of commercial-banking services and provide short-term
credits for
technical-development projects and the implementation of
new
technology. The government did not permit these banks to
establish direct foreign banking relations, however, or to
offer
banking services to individuals. The Hungarian Foreign
Trade Bank
handled foreign-currency exchange, countertrade, letters
of
credit, and industrial cooperation deals. In addition, it
provided short-term import and export credits and loans
for
projects geared toward expanding exports. Eleven smaller
financial institutions also offered commercial-banking
services.
Hungary has joined with foreign investors to form
several
other commercial banks. The Central-European International
Bank
(CIB), which had US$436 million in assets in 1986,
performed
lease financing and prefinancing of export contracts.
Founded in
1979, CIB was the first offshore bank (a bank set up in a
foreign
country to take advantage of the particular regulatory
environment of that country) in a Comecon country and the
first
joint venture in Hungary in which Western partners took a
majority stake. The Hungarian National Bank held a 34-
percent
share, and six Western banks each held 11 percent shares.
Another
commercial bank, Citibank Budapest, was a joint venture of
Citibank Overseas Investment Corporation and the Central
Wechselund Creditbank A.G. Citibank Budapest was the first
Western bank
permitted to take direct part in commercial banking
activities in
Hungary. It was a full-service commercial bank that
operated in
forints and convertible currencies. Unicbank was a third
commercial bank offering equity financing for new and
expanding
ventures and short-, medium-, and long-term loans to
state-owned
enterprises, cooperatives, joint ventures, and private
businesses. Six Hungarian financial institutions and
cooperative
banks from Austria and West Germany joined with the
International
Finance Corporation, a subsidiary of the World Bank, to
form
Unicbank in 1987.
Other than local savings cooperatives, Hungary's
National
Savings Bank was the only financial institution permitted
to
serve individuals in the late 1980s. The National Savings
Bank
handled savings accounts, made loans to individuals and
private
businesses, and engaged in foreign currency exchanges
through a
countrywide network of branches. The bank also handled
convertible-currency accounts for Westerners, offering
competitive interest rates and protection from Western tax
authorities. Other small venture-capital institutions
allowed by
a 1982 government decree provided either credit or equity
to new
businesses engaged in innovation, technical development,
and the
like, that the traditional financial institutions were not
equipped or inclined to finance.
In addition to these financial institutions, in the
late
1980s Hungary had two separate insurance companies.
Spurred by
rising inflation in Hungary, the insurance companies had
become
strong advocates of further economic reform, especially
the
broadening of laws on equity investment. One of the
companies
made direct investments in a private hotel and a brewery
and
planned to invest in the construction of office buildings.
Data as of September 1989
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