Banking and Financial Services

Abstract

Our first case study examines the banking and financial services sector in Hungary. Far and away the most internationalized of the ECE banking sectors, it has been subject to EU-conforming rules since 1998. As our case illustrates, it was the decision of the Hungarian state to sell the banks to strategic foreign investors that largely contributed to the speed with which Hungary could adopt EU rules into national law. Foreign banks, in largely serving MNEs based in Hungary, forced the domestic banking sector to upgrade its service provision and internal capital structures if they wished to capture a portion of the lucrative MNE market for financial services. This had a knock-on effect, forcing OTP Bank, Hungary’s largest retail bank, to follow suit in the personal and small business sector if it wished to maintain its market position as the leading retail bank in Hungary. The chapter is organized as follows. Part one gives a narrative on the development of the Hungarian banking sector. Part two examines the role of FDI in the banking sector. It details the history of FDI in this sector and the changing ownership structures of the sector. Part three evaluates the role played by foreign banks in legislative approximation towards EU standards. Part four is a concluding section.