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Preparing for EU Membership: Restructuring the Banking Sector in Hungary

In: Shaping the New Europe

Author

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  • György Surányi

Abstract

A comprehensive reform of the Hungarian financial sector began in 1987, when the banking system was divided into two tiers. The National Bank of Hungary retained its central bank functions but its commercial banking activities were transferred to three newly established banks. The economic depression of the early 1990s severely affected the financial sector, causing a marked deterioration in banks’ loan portfolios. At that time neither the management of the institutions nor the regulatory and supervisory authorities were capable of managing the situation. After the implementation of a legislative ‘shock therapy’, which included the introduction of international standards on capital adequacy, portfolio classification and banking supervision and made formerly hidden problems visible, the Hungarian banking sector went through a costly but successful restructuring and consolidation process in 1992–94. The consolidation programme consisted of three main stages – portfolio clean-ups, enterprise restructuring and bank recapitalization – and cost taxpayers HUF330 billion, which corresponded to about 10 per cent of GDP.

Suggested Citation

  • György Surányi, 2004. "Preparing for EU Membership: Restructuring the Banking Sector in Hungary," Palgrave Macmillan Books, in: Michael A Landesmann & Dariusz K Rosati (ed.), Shaping the New Europe, chapter 4, pages 103-116, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-52369-2_5
    DOI: 10.1057/9780230523692_5
    as

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