Banking Sector Reform in Hungary: What Have We Learned and What are the Prospects?

Abstract

The article reviews the reform of and current trends in the Hungarian banking system and draws some lessons that can be useful for countries less advanced in the transition process. The author argues that since in transition economies the weak financial position of state enterprises has been one of the major sources of difficulties encountered by the banks, it is crucial that the restructuring of the banks and enterprises go in tandem. He also makes the point 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 article goes on to discuss the reasons for the low depth of financial intermediation in Hungary and concludes that this situation will change only slowly.