Retail Banking in Hungary: A Foreign Affair?

53 Pages Posted: 20 Feb 2001

See all articles by John Bonin

John Bonin

Wesleyan University - Economics Department

Istvan Abel

Budapest Business School

Date Written: December 2000

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 Orszagos Takarekpenztar es 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.

Keywords: Hungarian Banking, retail banking in emerging markets, foreign bank entry

JEL Classification: G1, P2, F3

Suggested Citation

Bonin, John P. and Abel, Istvan, Retail Banking in Hungary: A Foreign Affair? (December 2000). Available at SSRN: https://ssrn.com/abstract=260759 or http://dx.doi.org/10.2139/ssrn.260759

John P. Bonin (Contact Author)

Wesleyan University - Economics Department ( email )

Middletown, CT 06459
United States
203-685-2000 (Phone)

Istvan Abel

Budapest Business School ( email )

Buzogany u. 10-12
Budapest H-1149
Hungary

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
399
Abstract Views
3,111
rank
96,551
PlumX Metrics