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As the first part in the merger of three Hungarian banks draws close, the new "superbank" will aim to shake up the financial services market in the country and throughout Eastern Europe with a focus on modernisation and digitalisation.
The new bank, announced last year, will be the result of a merger between three large commercial banks — Budapest Bank, MKB Bank and Takarék Bank — with the intention of creating a superbank that can compete with other banks on an international level.
“It has been a long debate in the Hungarian banking sector that there is a need for large banks in order to sustain market growth and operations in the long term,” András Puskás, deputy CEO of the new bank, said last month in a TV interview.
The superbank, whose name has yet to be determined, will be Hungary’s second-largest commercial bank after incumbent OTP and will have the size, its executives say, to compete at a European level.
Last week, the holding company for the bank announced that it had appointed a new CEO for the venture, Zsolt Barna.
Digitalisation and human resources
A key element of the superbank’s plans is digitalisation and the development of a new IT infrastructure.
The new architecture is expected to reduce the bank’s operating costs and help it reach a “digital breakthrough that will enable it to leave all its competitors behind in the Hungarian market and to compete with fintechs, big techs and neobanks”, claims Puskás.
Balázs Vinnai, a board member of the new bank and digital banking expert, said the superbank’s IT integration process is like choosing between the overhaul of an old car and buying a brand new Tesla.
“We have decided in favour of the completely new and modern system because it neither lasts longer nor costs more than the combination of existing legacy systems,” Vinnai said.
Banks typically use one big and rigid IT system where each technological element and product is mutually dependent on each other and each part is interconnected.
By contrast, Vinnai said the new entity will build the base functions on a “thin” payments and account management system one by one, without any cross-dependency.
Instead of standardised solutions, it will provide personalised functionality with quick developments that can be carried out within one or two weeks.
The bank has not yet signed the contracts for all these developments, but Vinnai said they are searching for partners that are at the forefront of “new wave technology solutions”.
In addition to cutting-edge technology, the bank also plans to gather expert knowledge, both outside and within the three banks’ organisations. They created an internal workshop named "The Foundation", after the famous novels of Isaac Asimov, to attract Hungarian and international technology experts, fintech specialists, designers and product managers.
The first step of the creation of the new bank will take place next March through the merger of MKB Bank and Budapest Bank and will be completed in the second quarter of 2023 with the integration of the Takarék Group. At this time, the new bank will come out with a unified design and a new name.
By the end of 2025, it aims to enter other European markets and establish a strong presence on stock exchanges.
Size matters
Hungary has a relatively large number of banks compared to the size of the country. The country currently has 28 licensed banks, nine of which are considered "large banks".
According to the country’s central bank, Magyar Nemzeti Bank (MNB), the lack of scale leads to consumers paying unjustifiably high costs, and the number of banks should be reduced by way of mergers and acquisitions.
In addition, foreign banks, especially from Austria and Germany have a significant share in the country’s banking sector, which has also seen the Russian Sberbank and the Bank of China entering the market.
Executives of this new bank say the size of the new entity, whose combined consolidated value is estimated to be £1.7bn, will enable them to compete with international players.
Meanwhile, other players in the banking sector argue that the new bank will become the main challenger of the country’s largest bank, OTP.
OTP has a solid 30 percent market share in retail banking, but the combined new bank would effectively already be the market leader for a number of services, including microloans to small and medium-sized businesses, leasing and agriculture banking.
These segments can help the bank to potentially become the largest bank in the country, but Puskás said its main goal is to expand to other European markets.
Despite the potential competition law concerns, Prime Minister Viktor Orbán declared the merger of national strategic interest last December, hence controversially exempting it from being subject to antitrust scrutiny.
Who owns the superbank?
The superbank will be owned 30 percent by the state, as well as by several entrepreneurs close to the country’s current government.
To be able to compete in other European markets in the region, bank executives argue it is essential to have an owner with strong capital.
“We are planning to establish a significant presence in both the Hungarian and Eastern European markets, which requires a strong ownership background, and we have it,” Puskás stressed.
With the three banks’ current branches, the superbank will have more than 900 offices in the country, which is roughly three times higher than the number of offices of its largest competitor, OTP.
Although it is inevitable it will reduce the number of branches, Puskás said the bank will help the government to advance financial policies, including those aimed to encourage the development of rural Hungary by making sure financial services remain available in the countryside.
