Lakatos, Koves and Partners Partner John Fenemore discusses Banking and Finance in Hungary in the year past and the one ahead.
CEELM: Over the past year, which areas of banking and finance work have been generating the most activity for lawyers in Hungary?
Fenemore: Liability management exercises have been an area that has kept us particularly busy, with several high-profile transactions in the last year as companies try to modify existing debt terms, retire debt, or refinance that debt to avoid more damaging restructuring proceedings, reduce debt costs, or secure additional capital. In many cross-border liability management exercises, Hungarian assets – which may originally have appeared too small or too difficult to take security over – come more into focus.
We also see continuing activity in the electricity generation sector – both solar and the construction by MVM of new low-carbon gas (and potentially hydrogen) powered power plants at Tiszaujvaros.
Hungary continues to be well-integrated into the global economy, and there are regular transactions in the manufacturing, food production, retail, and film production companies that involve Hungarian obligors and assets.
CEELM: Are you seeing any shifts in the balance between traditional bank lending and non-bank or alternative financing, and how is that affecting the market?
Fenemore: On cross-border transactions, we have seen a major shift with non-bank lenders playing a significant part in big pan-European deals. On domestic and Hungary-specific transactions, this is less so: lending – even to large corporates – is a regulated activity in Hungary and in most cases requires the lender to hold a banking license. This excludes non-bank lenders from most transactions unless they fall within one of the quite narrow exemptions to the licensing requirement.
Where non-bank lenders are involved in a transaction, they tend to be very discerning in relation to the advice they receive. They need robust regulatory advice and solid advice on the practicalities of enforcing security. They ask the right questions, evaluate the advice carefully, and you can feel it in their decision-making processes.
CEELM: Have any recent regulatory or supervisory developments started to affect banks or financial institutions in practice, and how are they adapting?
Fenemore: We have noticed cross-border clients gearing up for the implementation of CRD-VI, which regulates how non-EU banks can provide core banking services within the EU. CRD-VI gives much-needed clarity on how non-EU banks can provide services in Hungary: either through establishing a branch within the EU or relying on harmonized exemptions. Many non-EU banks are considering establishing branches within the EU to offer such services within the EU. Others feel they are able to rely on the now harmonized exemptions, which provide a strict but much clearer footing for non-EU lenders.
We also expect additional market activity in relation to NPLs following the implementation of the EU NPL Directive. A clear barrier to entry into the NPL market in Hungary was the need to hold a license to acquire receivables. The new legislation provides a framework for specialist but non-regulated entities to acquire and hold NPLs.
CEELM: Looking ahead, where do you expect activity to pick up in the market, whether in new lending, refinancing, or alternative financing? Why?
Fenemore: That depends very much on two things: (a) the state of the global economy in this turbulent period of war and tariffs, and (b) the outcome of the Hungarian elections. In either case, there are both opportunities and risks; however, restructuring is an area that is likely to continue to be important.
We tend to see a downturn in work prior to elections and an upturn immediately following them. Many investors will have postponed investment decisions until they receive greater clarity on the political environment after the elections. If there is a change in government, there is likely to be a fairly significant correction in the business environment and a period of disruption and restructuring. This presents opportunities both for lawyers and for investors.
This article was originally published in Issue 13.1 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
