How one judges the financing of the Serbs is a matter of politics

– explained to Index Kornél Kisgergely, CEO of Eximbank Plc., shortly after the government had granted a large loan to Bosnia’s Republika Srpska last year. He added that the loan was decided on by the cabinet, and Eximbank – as a state-owned financial institution – executed the order accordingly.

Since then, political instructions have multiplied to the extent that even the applying regulations had to be modified. Although it was not widely publicised, the upper limit of the loan portfolio that Eximbank can grant based on individual government decisions was increased by HUF 600 billion during the year. This was revealed by a government decree issued under a state of emergency, which overrode the budget law and

expanded the framework for individually targeted loans provided by the government through Eximbank to a total of HUF 1,800 billion.

At the same time, this is the total amount of loans, “significant form a national strategic perspective”, that the Hungarian state must stand as a guarantor for. In other words, if the client defaults for any reason, the Hungarian budget will have to repay the money into Eximbank’s coffers.

The expansion of the loan framework is evident elsewhere as well: in September, the equity of Eximbank was increased by HUF 15 billion to HUF 355 billion by the bank’s supervisor, Minister of Economic Development Márton Nagy. As with financial institutions in general, greater lending requires greater capital strength, so the necessary recapitalisation was carried out at the state bank as well.

Szajki Bálint / 24.hu Márton Nagy

Neither Márton Nagy nor Eximbank informed the public about what justified the 50 per cent increase in the state loan framework and why the capital strengthening was necessary. Our questions to Eximbank remained unanswered, and despite repeated promises, no responses were received from the Ministry of Economic Development either.

However, a government proposal obtained by our paper still provides insight into the cabinet’s lending offensive. At the end of July, the Ministry of Economic Development prepared a document outlining the steps needed for Eximbank to provide a €500 million (approximately HUF 200 billion) loan to the Republic of North Macedonia, in line with the government’s decision. The proposal described a 15-year free-use loan with a three-year grace period, but the attached list also revealed that this loan was not the only one the government was arranging through Eximbank.

The limit of the loan portfolio granted by Eximbank based on government decisions was previously HUF 1,200 billion in both the budget law and the aforementioned government decree, providing enough coverage for the previously disbursed loans totalling nearly HUF 900 billion – even when factoring in the 15 per cent exchange rate buffer, increasing the total value to HUF 1,033 billion. However, with the new €500 million (HUF 196 billion at the time) loan for North Macedonia, Eximbank exceeded the limit, if only by a hair’s breadth.

The framework, in turn, was increased by HUF 600 billion, which the loan to North Macedonia alone would not have justified. The proposal reveals that the government factored in several already approved and contracted loans, as well as planned ones, into the increase.

These collectively amounted to several hundred billion forints, and most of the recipients were companies.

The largest item on the list was the €500 million loan to the Republic of North Macedonia, praised by the Balkan country’s finance minister in early October. The positive attitude is not surprising, as for the 15-year loan, Eximbank is charging an interest rate of 3.25 per cent. This is very favourable, since according to the minister, North Macedonia could not expect anything better than a 6 per cent euro interest rate, meaning that Márton Nagy’s offer will save Skopje €14 million annually.

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