||Hungarian Development Bank (MFB)
The Hungarian Development Bank (MFB) is a state-owned specialized financial institution functioning as a development bank in the classical sense of the word, dealing with the allocation of public and market resources for development purposes. The Bank’s strategy is primarily defined by its role in the attainment of government development objectives, and it operates with a view to advancing Hungary’s economic convergence with the most developed countries by providing medium- and long-term development loans and development capital.
MFB operates in harmony with the state’s economic policy objectives. It performs reallocation of assets based on their peculiar characteristics, but does not perform asset management of any kind. MFB facilitates the development of Hungarian economy and its structural and standard convergence with the most developed economies by countering the lack of capital for structural and development purposes and the lack of long-term credit for development which has been hindering the integrated and consistent development of the economy as a whole.
MFB’s strategy, as well as its related structure of activities and the decision-making mechanisms that derive from them, and the Bank’s set of business objectives and instruments are all determined by the intention to contribute to the implementation of the economic development objectives, and to promote economic development. MFB is obliged to do so by the European Union rules pertaining to MFB’s particular status as well. Being the development bank of the state, MFB promotes the accomplishment of development objectives of the economic policy by channelling development funds into the economy and by granting development capital and development loans – in consideration of the theoretical and specific elements of the economic strategy.
With the proper application of its banking instruments, MFB ensures the optimum use of subsidies and preferences related to objectives of the economic policy, the manifestation of market effects, the adequate evaluation of return pertaining to a given development project, banking and technical expert control and monitoring.
MFB is capable of implementing its mission by virtue of its peculiar banking status as well as its regulated system of relations to decision-making centres with a focus on activities, decision-making and economic policy.
Functions of MFB Rt.
Based on international experience of development banks and fully taking into account the guidelines of international organisations involved in development financing while considering the trends in European development banking, and also to ensure transparent activities, MFB basically performs its objectives set out in a legislative framework and its banking strategy in four activity blocks that are separate in terms of function but are related in terms of contents, management and business.
1. Provision of financing for companies and state development investment considered significant in terms of the national economy.
2. Relying on partly government, or fully banking resources, it provides capital- and loan-financing of private-sector investments that are consistent with economic development objectives.
3. Channeling diverse international development aid in ways consistent with economic development objectives, and supplying international economic aid designed to assist Hungarian enterprises.
4. Consistent with economic development objectives, it provides various loans and government guarantees in order to increase the international efficiency and reduce the risk exposure of companies operating in Hungary.
MFB supports with its direct and indirect tools several ‘bridge’ functions as well:
• ‘Bridge’ between economic policy objectives and efficient economic activities;
• ‘Bridge’ between support, incentives and effective economic performance;
• ‘Bridge’ between world economy and domestic economy;
• ‘Bridge’ between EU support and their EU conform utilisations.
Key elements of the Bank’s operational strategy
The activities of the Hungarian Development Bank are consistent with Hungary’s economic policies and are compliant with international requirements. MFB channels the development resources into the economy via its bank instruments, and also ensures the optimum use of subsidies and preferences. The transparency of its operation ensures that confidence in public institutions is strengthened.
The Hungarian Development Bank performs bank-like activities with specific and unique responsibilities, but it nevertheless still applies the decision-making and analytical methods and market mechanisms characteristic of commercial banks. As part of this, it uses standard techniques of bank and technical supervision, complies with the requirements of prudent banking operations, and places great emphasis on recovery. The Bank provides resources for development investment on the basis of the ‘positive recovery’ principle with a view to yielding positive returns on all projects that the Bank supports.
MFB wishes to render the support for state development objectives subject to economic business management as a requirement in an efficient manner. At the same time, it wishes to operate as an ‘expert’ and service provider financial institution. It has direct contact with businesses. As a development bank it faces the task of dealing with regional development characteristics in a complex manner. Based on these, MFB actively participates in financing the economic development programmes of the National Development Plan. At the same time, it is able to play a major role in components of the ‘Europe Plan’ support programme which – in line with the practice of OECD countries – promote direct foreign investment by providing direct or indirect subsidised instruments.
The Hungarian Development Bank finances its economic development operations from three distinct sources:
• its own loans acquisitions as well as securities issued on the domestic and international markets with state guarantees,
• development resources of international organizations (e.g. EU),
• budget resources allocated for special purposes,
The bank treats the resource structure, objectives and assessment of each individual project independently of each other. This ensures transparency, in particular by allowing easier assessment of the degree to which a given project is measuring up to economic objectives. Some of the instruments may be regrouped in accordance with defined conditions, with the exception of government development support that is specifically earmarked. Regrouping of specific independent activity groups with independently assessable functions is only possible ‘vertically’, i.e. within the system of management, and not ‘horizontally’. This is also required by political and social demands for transparency of state-supported economic activities.
EU competititon policy
In the Bank’s activities international rules and standards on competition (OECD, WTO and EU regulations) are fully taken into consideration. The meeting of development objectives set by the EU is a new requirement for the Bank. In its operation, the Bank has to meet both the competition rules of the EU and the development demands of the economy. MFB operates in an EU conform way as a bridge between domestic development demands and EU requirements. According to the competition rules of the EU, the products of the Bank can have the following characteristics:
• Market based;
• No prior approval is required;
• Notification is necessary.
The Bank aims to ensure the homogeneity of programs that makes easier the evaluation of programs from competition policy aspects. For the evaluation of the Bank’s programs, the following EU Regulations are the most important:
1. Regulations concerning block-exemptions:
• Regional state aids;
• State aid to SMEs; support of research and development;
• Job creation;
• Environmental protection.
2. De-minimis rule (state aid equivalent is less then EUR 100 000)
MFB performs its objectives and operational principals with its product strategy elaborated in accordance with its economic policy objectives and the development priorities of the European Union. The starting point of product development strategy is that products fit in Hungarian economic development priorities, efficiently support the development and catching up requirements connected to the EU accession and the modernisation of the economy, speed up the transformation of system of activities and continuously improve the competitiveness of enterprises. Taking into account these considerations, the Hungarian Development Bank defines three product groups (priorities) according to which the already existing products and those of under preparation can be grouped.
A. Product group for economic development. This product group is aimed at supporting efficient activities with big development potential. These priorities are partly connected to EU development aims, but are partly independent from them.
B. Product group for ‘catching up’ connected to EU accession and EU and related state aids. This product group is connected to EU accession and EU and related state aids. E. g. products for technology development; programs for supporting agricultural production and food-processing industry, products for improving energy efficiency and developing educational infrastructure.
C. Product group of special purpose. This product group is aimed at economic development according to special considerations.
The position of MFB Rt. within the Hungarian banking system
MFB was exempted from the application of the rules on the commencement and pursuing of activities of credit institutions of the European Union. This agreement – based on international experience – does not limit substantially the size of credit institutions or the possibility of extending the activities of credit institutions that are found on the list of derogations. European Union legislation does not provide for quantified rules concerning quantity indicators (e.g. related to the maximum market share of the given credit institution). The Hungarian Development Bank is an integral part of the Hungarian banking system aiming to complement the activities of commercial banks. It performs its activities partly independently and partly via other commercial banks. Being one of the main actors in the development segment, it expands the variety of financing and money market services while exerting a synergic effect on the money market. Nevertheless, the Hungarian Development Bank does not intend to become an influential actor on the Hungarian money and capital market; its activities will cover approximately 4–5% of the Hungarian bank market in the next ten years – a market share deriving primarily from activities that do not compete directly with those of commercial banks.