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By Gergely Szakacs
BUDAPEST (Reuters) - There may be room for only five major banks in Hungary, bankers said on Thursday, as lenders weigh the cost of compensating people who took out risky foreign currency mortgages.
Central bank Managing Director Marton Nagy told the Reuters Eastern Europe Investment Summit earlier this week that just five major banks would remain in Hungary after competing for clients when Swiss franc and euro mortgages are converted next year.
Speaking at a conference organised by financial news website portfolio.hu on Thursday, Nagy said the only way forward for lenders in Hungary, who are paying one of Europe's highest bank levies, will be to merge or leave.
Other senior bankers agreed that heavily-taxed banks who have been slashing costs for years will find it increasingly hard to boost profits.
All the major foreign banks in Hungary, which include Austrian Erste Bank (VI:ERST) and Raiffeisen (VI:RBIV), Italian Intesa Sanpaolo (MI:ISP) and UniCredit (MI:CRDI) and Belgian KBC (BR:KBC), have said they would not pull out.
Major local banks include OTP (BU:OTPB), KBC (BR:KBC) and MKB, which the government bought recently. Each of these groups has a combined share of just over a third of the Hungarian market.
"It may well be that every bank wants to stay but at the end of the competition, which will be a competition in pricing, in efficiency and scale, five banks will remain because for the rest it will not be worth it," Nagy said.
The heads of major foreign banks in Hungary who took part in a panel discussion, including GE Capital, Erste and Raiffeisen, largely shared that assessment.
"The cake in terms of total bank revenues going forward will be smaller than it was before the crisis, that is clear," Raiffeisen Hungary's Chief Executive Heinz Wiedner said.
"In reality, the question is how many banks, large universal banks can be profitable going forward under that scenario. Whether it is four, five, six, it is hard to say, I would not put a number," he said.
But he added that if mergers were the desired way to reach that objective, some incentives would be required to facilitate the process.
"If you merge two banks today, you have to pay immediately double the banking tax on 2009 balance sheets and today the balance sheets are probably 30 percent smaller than at that time," Wiedner said.
"But that there will be in the longer run some change in the banking system, I do believe that there will be, but then I think also rules of the game will have to be changed," he said.
Austrian peer Erste's Chief Executive Radovan Jelasity added it was probably just a matter of time.
"We have been saying this since 2009, 2010, 2011 that this should definitely happen," Jelasity said.
"I think both sides will he happy once this happens, those who are part of the five (that remain) as well as those that are not, because this will significantly contribute to the better functioning of the banking sector," he said.
(Editing by Ruth Pitchford)