IDEAS home Printed from https://ideas.repec.org/p/wdi/papers/2000-356.html
   My bibliography  Save this paper

Retail Banking in Hungary: A Foreign Affair?

Author

Listed:
  • John P. Bonin
  • Istvan Abel

Abstract

Over the last decade, Hungary has experienced more foreign bank entry than any country in world, starting with foreign greenfield operations and then followed by the privatization of four of its largest banks to strategic foreign owners. Currently about two thirds of all banking assets in Hungary are foreign owned; the only major bank without a foreign owner is Orsz??gos Takar??kp??nzt??r ??s Kereskedelmi Bank (OTP). During a decade in which lending to households declined in real terms until recently and household deposits remained relatively steady at around 20% of GDP, OTP lost its monopoly in retail banking to foreign-owned banks. By the end of the decade, OTP held shares of just over 50% in both household deposit and credit markets. In the last half of the decade, foreign banks increased substantially their market shares and currently hold more than 40% of all household deposits and about 40% of all loans to households. In this paper, we identify the important role played by foreign greenfield operations in intermediation within the household sector, especially from 1997. We provide evidence that, once they take control of formerly state-owned banks, strategic foreign investors move aggressively into retail banking. As the decade came to a close, retail banking was a growth industry in Hungary and foreign-owned banks were actively participating in both markets. Foreign entry provided healthy competition to OTP and prodded this widely held domestically controlled bank to develop new products and better services for Hungarian households. Over the last half of the decade, bank cards have been introduced to Hungarian households and transactions using these cards have grown by a factor of more than five. Over half of the population uses bank cards twice a month on average, almost exclusively for cash withdrawals from their current accounts. By investing heavily in information technology and using its extensive branch network, OTP has become the market leader in this new, growing business with more than 40% of all ATMs and bank cards issued in Hungary and more than 70% of all bank card transactions. Our analysis of OTP's behavior indicates that domestically controlled banks with local expertise may have a significant role to play in retail banking in small, open transition (or emerging) economies.

Suggested Citation

  • John P. Bonin & Istvan Abel, 2000. "Retail Banking in Hungary: A Foreign Affair?," William Davidson Institute Working Papers Series 356, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:2000-356
    as

    Download full text from publisher

    File URL: http://deepblue.lib.umich.edu/bitstream/2027.42/39740/3/wp356.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. B. Gerard Dages & Linda S. Goldberg & Daniel Kinney, 2000. "Foreign and domestic bank participation in emerging markets: lessons from Mexico and Argentina," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 17-36.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Emilio Colombo & Luca Stanca, 2006. "Investment decisions and the soft budget constraint," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 14(1), pages 171-198, March.
    2. Ilko Naaborg & Bert Scholtens & Jakob de Haan & Hanneke Bol & Ralph de Haas, 2004. "How Important are Foreign Banks in the Financial Development of European Transition Countries?," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 3(2), pages 99-123, August.
    3. Judit Temesváry, 2014. "Explaining the Differences between Local Currency versus FX-denominated Loans and Deposits in the Central-Eastern European Economies," CERS-IE WORKING PAPERS 1405, Institute of Economics, Centre for Economic and Regional Studies.
    4. Buch, Claudia M. & DeLong, Gayle, 2004. "Cross-border bank mergers: What lures the rare animal?," Journal of Banking & Finance, Elsevier, vol. 28(9), pages 2077-2102, September.
    5. Erik Berglof & Patrick Bolton, 2002. "The Great Divide and Beyond: Financial Architecture in Transition," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 77-100, Winter.
    6. Hanneke Bol & Jakob de Haan & Bert Scholtens & Ralph de Haas, 2002. "How Important Are Foreign Banks in European Transition Countries? A Comparative Analysis," International Finance 0209005, University Library of Munich, Germany.
    7. Emilio Colombo & Luca Stanca, 2003. "Investment Decisions and the Soft Budget Constraint: Evidence from Hungarian Manufacturing Firms," Working Papers 68, University of Milano-Bicocca, Department of Economics, revised Dec 2003.
    8. Alberto Franco Pozzolo, 2009. "Bank Cross-Border Mergers and Acquisitions: Causes, Consequences, and Recent Trends," Springer Books, in: Alberto Zazzaro & Michele Fratianni & Pietro Alessandrini (ed.), The Changing Geography of Banking and Finance, edition 1, chapter 0, pages 155-183, Springer.
    9. Linda S. Goldberg, 2004. "Financial-sector foreign direct investment and host countries: new and old lessons," Staff Reports 183, Federal Reserve Bank of New York.
    10. Bonin, John P., 2004. "Banking in the Balkans: the structure of banking sectors in Southeast Europe," Economic Systems, Elsevier, vol. 28(2), pages 141-153, June.
    11. Jelena Andrasic & Nada Milenkovic & Kristina Mijic & Vera Mirovic & Branimir Kalas, 2018. "The Impact of Acquisitions on Profitability: Evidence from the Banking Sector in Serbia," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 83-99.
    12. Linda S Goldberg, 2009. "Understanding Banking Sector Globalization," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 171-197, April.
    13. Giannetti, Mariassunta & Ongena, Steven, 2005. "Financial Integration and Entrepreneurial Activity: Evidence from Foreign Bank Entry in Emerging Markets," CEPR Discussion Papers 5151, C.E.P.R. Discussion Papers.
    14. Volkhart Vincentz, 2002. "Entwicklungen und Tendenzen der Finanzsysteme in Osteuropa," Working Papers 237, Leibniz Institut für Ost- und Südosteuropaforschung (Institute for East and Southeast European Studies).
    15. Karligash Kenjegalieva & Richard Simper, 2010. "A Productivity analysis of Eastern European banking taking into account risk decomposition and environmental variables," Discussion Paper Series 2010_02, Department of Economics, Loughborough University, revised Jan 2010.
    16. Linda S. Goldberg, 2007. "Financial sector FDI and host countries: new and old lessons," Economic Policy Review, Federal Reserve Bank of New York, vol. 13(Mar), pages 1-17.
    17. Hasan, Iftekhar & Marton, Katherin, 2003. "Development and efficiency of the banking sector in a transitional economy: Hungarian experience," Journal of Banking & Finance, Elsevier, vol. 27(12), pages 2249-2271, December.
    18. Laurent Weill, 2003. "Banking efficiency in transition economies," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 11(3), pages 569-592, September.
    19. Judit Temesvary, 2016. "The drivers of foreign currency-based banking in Central and Eastern Europe," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 24(2), pages 233-257, April.
    20. Liliana DONATH, 2008. "Theoretical Considerations Concerning Foreign Banks Entry on The Domestic Banking Market," Timisoara Journal of Economics, West University of Timisoara, Romania, Faculty of Economics and Business Administration, vol. 1(1), pages 109-119.
    21. Akbar, Yusaf H. & McBride, J. Brad, 2004. "Multinational enterprise strategy, foreign direct investment and economic development: the case of the Hungarian banking industry," Journal of World Business, Elsevier, vol. 39(1), pages 89-105, February.
    22. Bonin, John & Wachtel, Paul, 2002. "Financial sector development in transition economies : Lessons from the first decade," BOFIT Discussion Papers 9/2002, Bank of Finland, Institute for Economies in Transition.
    23. Claudia M. Buch & Gayle L. DeLong, 2008. "Banking Globalization: International Consolidation and Mergers in Banking," IAW Discussion Papers 38, Institut für Angewandte Wirtschaftsforschung (IAW).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ramon Moreno & Agustin Villar, 2005. "The increased role of foreign bank entry in emerging markets," BIS Papers chapters, in: Bank for International Settlements (ed.), Globalisation and monetary policy in emerging markets, volume 23, pages 9-16, Bank for International Settlements.
    2. Claessens, Stijn & van Horen, Neeltje, 2012. "Being a foreigner among domestic banks: Asset or liability?," Journal of Banking & Finance, Elsevier, vol. 36(5), pages 1276-1290.
    3. Jonathon Adams‐Kane & Julián A. Caballero & Jamus Jerome Lim, 2017. "Foreign Bank Behavior during Financial Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 49(2-3), pages 351-392, March.
    4. Wu, Ji & Luca, Alina C. & Jeon, Bang Nam, 2011. "Foreign bank penetration and the lending channel in emerging economies: Evidence from bank-level panel data," Journal of International Money and Finance, Elsevier, vol. 30(6), pages 1128-1156, October.
    5. Giorgia Barboni, 2017. "Foreign banks as shock absorbers in the financial crisis ?," Working Paper Research 322, National Bank of Belgium.
    6. Sissy, Aisha Mohammed & Amidu, Mohammed & Abor, Joshua Yindenaba, 2017. "The effects of revenue diversification and cross border banking on risk and return of banks in Africa," Research in International Business and Finance, Elsevier, vol. 40(C), pages 1-18.
    7. Brei, Michael & Jacolin, Luc & Noah, Alphonse, 2020. "Credit risk and bank competition in Sub-Saharan Africa," Emerging Markets Review, Elsevier, vol. 44(C).
    8. Herrero, Alicia Garcia & Martinez Peria, Maria Soledad, 2007. "The mix of international banks' foreign claims: Determinants and implications," Journal of Banking & Finance, Elsevier, vol. 31(6), pages 1613-1631, June.
    9. Beatriz de Blas & Katheryn Russ, 2010. "FDI in the Banking Sector," Working Papers 108, University of California, Davis, Department of Economics.
    10. Linda S. Goldberg, 2002. "When Is U.S. Bank Lending to Emerging Markets Volatile?," NBER Chapters, in: Preventing Currency Crises in Emerging Markets, pages 171-196, National Bureau of Economic Research, Inc.
    11. Aadil Nakhoda, 2013. "Bank Competition and Export Diversification," EERI Research Paper Series EERI RP 2013/12, Economics and Econometrics Research Institute (EERI), Brussels.
    12. Demir, Firat, 2006. "Volatility of short term capital flows, financial anarchy and private investment in emerging markets," MPRA Paper 3080, University Library of Munich, Germany, revised May 2007.
    13. Berger, Allen N. & Buch, Claudia M. & DeLong, Gayle & DeYoung, Robert, 2004. "Exporting financial institutions management via foreign direct investment mergers and acquisitions," Journal of International Money and Finance, Elsevier, vol. 23(3), pages 333-366, April.
    14. Vuslat Us, 2015. "The Turkish Banking Sector Before and After the Global Crisis:An Ownership Breakdown," CBT Research Notes in Economics 1502, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    15. Linda S. Goldberg, 2007. "Financial sector FDI and host countries: new and old lessons," Economic Policy Review, Federal Reserve Bank of New York, vol. 13(Mar), pages 1-17.
    16. -, 2003. "CEPAL Review no.79," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.
    17. Ahmet Faruk Aysan & S. P. Ceyhan, 2006. "Globalization of Turkey's Banking Sector: The Determinants of Foreign Banking Penetration in Turkey," Working Papers 2006/20, Bogazici University, Department of Economics.
    18. Allen Berger & Iftekhar Hasan & Leora Klapper, 2004. "Further Evidence on the Link between Finance and Growth: An International Analysis of Community Banking and Economic Performance," Journal of Financial Services Research, Springer;Western Finance Association, vol. 25(2), pages 169-202, April.
    19. Berger, Allen N. & Klapper, Leora F. & Udell, Gregory F., 2001. "The ability of banks to lend to informationally opaque small businesses," Journal of Banking & Finance, Elsevier, vol. 25(12), pages 2127-2167, December.
    20. Aneta Hryckiewicz & Oskar Kowalewski, 2010. "Why do Foreign Banks Withdraw from other Countries? A Panel Data Analysis," CESifo Working Paper Series 3006, CESifo.

    More about this item

    Keywords

    hungarian banking; retail banking in emerging markets; foreign bank entry;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • P2 - Economic Systems - - Socialist Systems and Transition Economies
    • F3 - International Economics - - International Finance

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wdi:papers:2000-356. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/wdumius.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: WDI (email available below). General contact details of provider: https://edirc.repec.org/data/wdumius.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.