Banking Sector Reform in Hungary: Lessons Learned, Current Trends and Prospects

Abstract

This paper reviews the reform of and current trends in the Hungarian banking system and draws some lessons that can be useful for countries where the reforms are less advanced. The point is made in the paper that since the weak financial position of state enterprises has been one of the major sources of difficulties encountered by the banks in transition economies, it is crucial that the restructuring of the banks and enterprises go hand in hand. One lesson learned is that consolidation should be based on an accurate assessment of the difficulties of the banks to reduce the cost of consolidation and should be accompanied by a strengthening of regulation and supervision to prevent the reproduction of losses. The paper also discusses the reasons for the low depth of financial intermediation in Hungary and concludes that this situation will change only slowly.