Late last month, November 27, the Hungarian Competition Authority, or the GVH as it’s known locally, fined 11 Hungarian banks a total of 9.5 billion HUF (approximately 31.3 million EUR or 42.5 million USD). The offence: collusion to limit the availability of refinanced loans for the holders of foreign currency-denominated mortgages. GVH has claimed to have proof that Hungary’s largest banks (foreign-owned and domestic) shared confidential client information and developed market altering behavior – a cartel, as GVH puts it – so that bank clients would not be able to take cheaper refinanced loans from bank B to pay back more expensive loans from bank A.
One page of the notes that - according to GVH - proves banks have been violating the cartel regulations. Source:GVH
The allegations themselves are quite serious and, one would think, newsworthy. But here’s a sample from the Financial Times coverage of the story:
“We have yet to recover our breath. In the context that the whole sector is in negative profits, this is awful,” said one source, referred to as “an insider” by FT’s Kester Eddy.
“This is such a negative surprise – a nightmare. If you consider the negative measures damaging the banks in recent years, the negative profits, this is … stupidity,” said “a person familiar with the banking sector.”
An ‘awful nightmare’. Yet, the Financial Times devotes little attention to the alleged collusion among the banks and is outraged at guess who? The Government.
“It is an understandable reaction, given that the banks have endured more than three years of what they see as punitive measures since the Fidesz government of Viktor Orban, the prime minister, swept to power in the spring of 2010,” writes Eddy on a blog post related to the article.
But this is just wrong on some of the very basic details.
The GVH is an independent body, independent from the Government. As with similar organizations in other countries, GVH reports to the Parliament, not the Government, according to a law passed in 1996, which established the independent authority. The Government has nothing to do with GVH. Secondly, again as in other countries, the GVH’s rulings can be appealed in court and, in this case, that appeal has already been filed. Thirdly, if the court upholds the GVH finding, this would constitute one of the strongest violations of banking ethics and laws in Hungary since 1989. That’s kind of a big deal.
There are other problems with the story. For example, it is untrue that the “whole [banking] sector is in negative profits.” Also, the article suggests (although it doesn’t explicitly say so) that only foreign banks were affected, but Hungary’s OTP Bank incurred the highest penalty. But these mistakes seem minor compared to the rest.
This is a serious issue. If true, it’s a clear violation of rules against cartels, according to GVH. Those “insider”, anonymous sources that have jumped on this as an opportunity to attack the government, saying that this comes as yet another blow to banks and is part of a trend of punitive measures come off sounding a little opportunistic and are completely missing the point.
The court ruling will decide whether these banks have violated the law, but as of now, the GVH has acted swiftly and in line with its independent charter and mission.