Hungarian Prime Minister Viktor Orban is seeking to reduce the presence of foreign banks in Hungary, a move that could add to tensions between the nation and the European Union and increase insurance costs for bonds.
Orban said on Monday that the nation plans to increase local bank ownership to at least 50 percent. Intesa Sanpaolo SpA CEO Enrico Tommaso Cuchicani said that the bank may reduce its presence in Hungary, and Danske Bank said that the move threatens “to nationalize” part of the banking industry, Businessweek reports.
The proposal could also increase tensions between Hungary, the euro-zone’s most indebted eastern nation, and the rest of the region, as lawmakers move to authorize an amendment to the Hungarian constitution that seeks to limit court independence.
“If the Hungarian government and the new central bank leadership continue to pursue such a highly unorthodox policy, there is a serious risk of major market meltdown,” Danske Bank analysts said, according to Businessweek. “We find it difficult to see how the Hungarian government will fund itself on international capital markets if the government and the central bank don’t move very soon to calm market fears.”
The European Commission may attempt to force Hungary to modify the constitutional changes if its review finds that the amendments conflict with European values.
“It’s an unhealthy situation that foreigners have such a high degree of ownership in Hungary’s banking system,” Orban said, Businessweek reports. “While respecting international treaties and relevant economic norms, we must strive to increase the Hungarian ownership ratio within the Hungarian banking system.”
Concerns regarding Hungary’s creditworthiness increased the cost of credit default swaps protecting the nation’s debt by 21 basis points to 341, the largest increase in 14 months and the highest level in five months.