Vol 12 (2015) - Issue 6

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Hungary Introduces New Banking Portfolio Transfer Regime

Increasing activity in the market for banking assets
Recent years have seen continued activity in the sale and purchase of banking assets in Hungary, but there has not been a regulatory transfer regime available for transactions other than transfers of corporate ownership (i.e. share sales) or deposit portfolios. Acquiring shares always entails assuming the risk in the history of the entity purchased, and the regulated purchase of deposits was a narrow opportunity covering just one product segment.
Buyers have had, on the basis of civil law requirements, to obtain the individual consents of the seller’s clients if they wanted to acquire anything beyond the client receivables (e.g. to include ancillary products). This acted as a disincentive to transactions which, economically, the market saw a need for, and as such seemed an obvious deficiency of Hungarian law. This was in contrast to transactions involving investment services and insurance where the law has for many years allowed portfolio transfers based on the approval of the regulator. The position is now changing.

New legislation enters into force
In June 2015 the Hungarian Parliament passed a comprehensive package of legislative amendments impacting various pieces of legislation, including the Act CCXXXVIII of 2013 on Credit Institutions and Financial Enterprises ('Banking Act'). The package includes a broad regulatory regime for the transfer of banking portfolios alongside other provisions including those designed to address issues arising from the recent bankruptcy of a number of brokerage companies, and associated scandals.
The amendments entered into force on 7 July 2015.

The new banking portfolio transfer regime
a. Broad product scope
The new regime under the Banking Act contains two sets of similar (but not identical) rules covering transfers of (i) deposits and payment services products and (ii) credit and leasing products and the purchase of receivables. While not explicitly stated in the new legislation we understand, from our involvement in the lawmaking process, that credit cards may fall under the rules relating to item (i), i.e. payment service products. There are no 'portfolio size' conditions for transfer of deposits and payment services products. However, for credit and leasing products and purchase of receivables, the application of the new regime requires transfer of a portfolio of at least 20 contracts or that the client receivables exceed HUF 10 billion (approx. EUR 31.6 million).

b. Capturing ancillary products and collateral
It is common banking practice that a number of ancillary products are packaged with the main product or that additional services are provided to clients e.g. to enable the client to access the product electronically. In addition, banks take various type of collateral to secure their exposure to clients. To tackle the position of such connected products and collateral, the amended Banking Act also covers the transfer of these to the purchaser as a part of the new regime, albeit with differences depending on the underlying banking product type.

c. Clients transfer based on regulatory approval, but may terminate
The new regime maintains the principal position of the earlier deposit portfolio regime, that the clients transfer upon the approval of the Hungarian National Bank, the financial regulator, and the consent of the client is not needed for their transfer. There is however an important change that impacts the simplicity of the foregoing. Clients must be informed in advance of their proposed transfer (30 or 60 days’ notice, depending on the product type), and are given by law the right to terminate their contract at no extra cost to them.