The National Bank Of Hungary to also Finance Special Purpose Loans
According to intended legislation, as of next year commercial banks may collect and place/extend long term loans, as well. The above ability of commercial banks is conditional upon such banks opening hard currency accounts with the National Bank of Hungary ("NBH") and tying such accounts down as savings accounts for a period of five years. In return for the long term right to use such hard currency accounts, the NBH shall provide the long term financial sources, i.e. the long term loans mentioned above. Although several reasons may be raised against such favourable interest rate loans (such as that they increase the internal state debt, unfavourably affect competition and special purpose loan financing is also alien to the classical NBH functions), they are still in demand because the local capital market is underdeveloped, there are no long term loans available and thus the involvement of the NBH in such market is necessary.
A huge step forward would be if high risk banks (e.g. Eximbank) able to receive foreign loans would be established. There are of course various concerns related to the favourable loans of the National Bank of Hungary, such as since the entering into effect of the Privatisation Act, the upper limit of E-loans is 50% of the assets to be privatised but no higher than HUF 50.000.000. 2-15% of the purchase price must be financed out of the company's own resources and only the remaining purchase price may be financed with external loans.
In light of the fact that loans extended to individual countries may be exclusively used to pay for exports from the country extending the loan, such loans are not overly popular. Accordingly, both the Australian and the Canadian country loan package is effectively unopened. The situation is different with Japanese loans the first of which in the amount of HUF 25 billion has been used up with the exception of HUF 1-2 billion. The second loan package remains to be unused to the extent of HUF 12 billion and the process of extending/placing such loans continues to be slow.
Although for next year a reduction in interest rates may be expected, such reduction will induce continued savings rather than increased consumption. The interest rate of the NBH is expected to be around 20-25% next year.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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