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BUSINESS JOURNAL BUDAPEST

VOL. 28. NUMBER 5

MARCH 13 – MARCH 26, 2020

Photo by AmCham/Hajnalka Hurta

SPECIAL REPORT Banking

SPECIAL REPORT

Banks Rush to Embrace Digitalization Physical bank outlets are still the preferred option in Hungary, while there are also signs that FinTech and traditional banks can intertwine into a bilaterally beneficial cooperation.  15 SPECIAL REPORT

Private Banking to Slow Down in 2020 Hungary’s private banking sector saw its total assets under management rise to a record high of HUF 5.720 trillion (EUR 17.3 billion) at the end of last year, a very healthy 21.9% increase on the 2018 figure, according to the latest industry analysis by Blochamps Capital.  19

Competitive Recommendations

SOCIALITE

Saluting Santana’s Secret Hungarian Connection Almost as we were going to press we heard that Santana’s Budapest concert, indeed, the whole European tour, had been postponed to a later, undetermined date. But that does not diminish the influence Hungarian guitarist Gábor Szabó had on Santana’s career. 22

NEWS

Hungaryʼs Economy and Coronavirus: Forecasting the Tempest It was always unlikely Hungary could match its 2019 economic growth of almost 5% in 2020. New Year forecasts were in the 3-3.5% range. Then, news began circulating of a new, flu-like virus spreading from China. 3

N ES BUSI

In making AmCham’s fifth recommendation package to Hungary’s government, its President Farkas Bársony and CEO Írisz Lippai-Nagy say the supply and development of a competitive workforce is the number one challenge right now, and the chamber continues to push hard for educational reforms. 8 BUSINESS

As Pessimism Grows, so do Opportunities The ninth PwC Hungarian CEO survey, the results of which were presented to an invited audience at the National Gallery on March 5, proved something of a contradictory beast, though local company heads are not so very different from their global counterparts in most cases.  12

News

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Budapest Business Journal | March 13 – March 26, 2020

BBJ

THE EDITOR SAYS

EDITOR-IN-CHIEF: Robin Marshall EDITORIAL STAFF: Balázs Barabás, Zsófia Czifra,

Kester Eddy, Bence Gaál, Gergely Herpai, David Holzer, Christian Keszthelyi, Gary J. Morrell, Nicholas Pongratz, Robert Smyth, Zsófia Végh. LISTS: BBJ Research (research@bbj.hu) NEWS AND PRESS RELEASES:

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What We Stand For: The Budapest Business Journal aspires to be the most trusted newspaper in Hungary. We believe that managers should work on behalf of their shareholders. We believe that among the most important contributions a government can make to society is improving the business and investment climate so that its citizens may realize their full potential. The Budapest Business Journal, HU ISSN 1216-7304, is published bi-weekly on Friday, registration No. 0109069462. It is distributed by HungaroPress. Reproduction or use without permission of editorial or graphic content in any manner is prohibited. ©2017 BUSINESS MEDIA SERVICES LLC with all rights reserved.

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ELBOW BUMPS AND FOOT SHAKING So, what is your company doing to combat coronavirus? I trust you will forgive me for returning to the subject so soon, but given the state of emmergency declared by the government on Wednesday, I think the reasons are obvious. At a business event last week I met Dale A. Martin, the winner of the HIPA Partnership Award at the BBJ Expat CEO Gala, whose photo was on our cover page in the last issue. Instinctively we went to shake hands, before he raised his eyes in mock horror and asked “Are we supposed to be doing this now?” We experimented with elbow bumps and foot bumps (the so-called “Wuhan shake”) before we did a quick mental risk assessment of people we had met and places we had been recently before deciding it would be OK to shake hands after all. It was all very light hearted, trivial even, though the health crisis behind it is far from that. When we next meet, perhaps we won’t shake hands at all. In our office block, a dry hand sanitizer appeared in the reception area this week. I walk the eight floors to our office every day and via the deeply unscientific analysis of looking through front doors can confirm that at least two of our fellow tenants have their own sanitizers right by the doorway, a third company has a sign indicating handshakes are unwelcome, and a fourth has a notice taped to the door asking you not to enter if you have traveled to coronavirus hotspots or been near someone displaying flu like symptoms in the past 14 days, and rely on email or virtual meetings instead. The Italians and French have been advised to be “a bit less expansive” in their greetings. Not so long ago, you might have been frowned upon for not greeting a friend

with a hug or a kiss on each cheek. Now you are more likely to be ostracized for doing that self-same thing. (The British are generally thought to be more standoff-ish in such matters, so no one has bothered to warn them against excessive cheek kissing.) That brings us back to respecting personal space (not breathing and spluttering all over each other) and, more importantly, hand hygiene. Whether you think it a risk to shake hands to conclude a business deal or not, you might like to consider a fact that the Guardian newspaper put out in a piece on the “the new coronavirus etiquette.” Citing Nicky Milner, director of medical education at Anglia Ruskin university, the paper said on average we carry 3,200 bacteria from 150 different species on our hands. And that’s before coronavirus came along. At its heart, the COVID-19 pandemic, as it is now ranked, is a very serious public health issue. But it could also become a matter of life and death for otherwise viable businesses that are cash poor or reliant on cash flow. Those employed in the gig economy in part time or temporary positions will have real concerns about unpaid leave and mortgage repayments if required to self-isolate. And while trendy media companies can relatively easily navigate around home office work patterns, it can quickly become pretty hard to manufacture something if enough key staff are missing from your factory. Whatever you do, keep healthy, keep profitable, and keep your distance. Now, go and wash your hands. Robin Marshall Editor-in-chief

PARTNER CONTENT

Fifth Staging of think.BDPST Reinvented water policy, challenges of energy diplomacy, 5G mobile technology, big tech regulation; the fifth edition of think.BDPST presents a remarkable line up. What, exactly, does 5G mean for our future? Are the existing water security strategies adequate? Is energy diplomacy an effective tool? Are big tech corporations threatening the world? The answers will be provided by experts and industry leaders on March 25-26 in Millenáris Park, where the fifth edition of think.BDPST will be held. Social innovation, human-machine interactions, digitalization, intelligent solutions, the future of health and transport: what has become one of the most important innovation forums

of Central and Eastern Europe always focuses on the latest global challenges. The think.BDPST conference is organized by the Antall József Knowledge Centre (AJKC) in cooperation with the Ministry of Foreign Affairs and Trade of Hungary and Millenáris Nonprofit Ltd., as well as with the support of the International Visegrád Fund. The event is dedicated to important and current subjects strongly affecting Hungary and its political-cultural environment. “This year’s event aims to dissect hot topics such as 5G, innovative solutions

for environmental protection, energy diplomacy, or the legal-economic aspects of big tech regulation,” said Veronika AntallHorváth, deputy director of the AJKC. The audience will discover the driving forces behind 5G technology, the way clean and drinkable water can remain the most important resource on Earth, the chances for the most energyconsuming countries to effectively address the pressing problem of climate change, and what can be done with the emerging social, political, and economic role played by corporations at the forefront of innovation. As in recent years, the event is expected to feature prominent figures from the political, economic and scientific spheres of Visegrád Group countries. There will be debates on – among other things – the socio-economic context of water scarcity and the role of social media in environmental, climate change subject matters with the Young Leadersʼ Forum audience. This permanent accompanying event of think.BDPST has over the years been attended by nearly 400 future

innovators, researchers, inventors and decision makers from 83 countries. A fascinating pitch competition, exciting workshops and helpful lectures characterize the Start-up Expo, the other accompanying event of think.BDPST, which this year presents a very unique segment: deep-tech firms are mainly driven by hightech engineering innovation in order to take advantage of substantial scientific benefits. This means higher risk compared to start-ups using existing technologies, which is why they need further assistance. Deep-techs are professionally supported by the Hungarian branch of the international non-profit organization, Hello Tomorrow, and Input Hungary, a government-initiated program to facilitate ICT start-ups to enter the international market.

Antall József Knowledge Centre (AJKC) Named after former Hungarian Prime Minister József Antall, AJKC focuses on broad topics such as the Visegrád Cooperation, the future global role of the U.S., China, and the Middle East, security policy, sustainable development, as well as technological and social innovation. During its 10-year existence, AJKC has organized numerous conferences, programs and series of events for the domestic and international professional community, as well as for students in higher education.

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Budapest Business Journal | March 13 – March 26, 2020

News///macroscope

Hungaryʼs Economy and Coronavirus: Forecasting the Tempest

The Hungarian economy once again surpassed initial expectations last year, expanding 4.9% on 2018, itself a 5.1% increase on 2017. But the warning signs were flashing before Christmas that such progress was unsustainable, and New Year forecasts for 2020 were in the 3-3.5% range. Then, news began circulating of a new, flu-like virus spreading from China. KESTER EDDY

Mezzo, an up-market restaurant near Széll Kálmán tér, in Buda, has a good name for food, victuals and service. Yet at lunchtime on the first working day of March, it hosted a mere handful of diners. “It’s all the more surprising since a week ago it was pretty much full,” one commented. Was this lack of custom an early sign of coronavirus worries, a micro-example of the impending economic fallout from the crisis? Apparently not, according to Gergely Haris, managing director of the family company that owns Mezzo. “Demand at weekday lunchtimes has always been fluctuating at Mezzo, there is no real pattern... so I wouldn’t say that the lower custom was due to the coronavirus,” he told the Budapest Business Journal.

Bad for Tourism

“Tourism is very badly hit. Look around; it’s really dramatic, and we are just at the beginning,” he said. “The virus is not an epidemic yet in Hungary, it’s very sporadic so far, but I’m sure it’s going to change for the worse in the coming weeks and months, so it’s going to be even worse for tourism.” Fortunately, the auto sector in Hungary uses few Chinese-made parts, so vehicle manufacturing has thus far largely escaped any negative effects of the crisis, but will obviously suffer from the inevitable drop in demand from export markets. So too, the banking sector is bracing itself for the expected shocks, with companies holding back on investments and households far more cautious in taking out retail loans. “[I expect] there will be companies going to the brink of bankruptcy, or even going bankrupt, [so] unemployment and non-performing loans increase, and that’s another hit to the bank sector,” Török said. The sudden economic cooling will have one positive development; inflation, which had been running over target at

about

The flight information board at Terminal A of Budapest Ferenc Liszt International Airport on March 10, informing the public flights are no longer allowed to land from the north of Italy. As a result of the coronavirus, Wizz Air and Ryanair have suspended flights to Italy and Wizz Air has also suspended flights to Israel. Photo by MTI/Zsolt Szigetváry However, Haris admitted that another business unit, Haris Park, a historic restaurant and conference venue, also in Buda, had seen two cancellations of events booked for March, and another on hold for April because of virus fears. “So yes, there is an influence on the hospitality sector, large groups are cancelling not only with us, but with our partners as well,” he said. At that time, and with no known cases of infection in Hungary, Haris was hopeful that the outbreak could be contained, and that the restaurant sector, at least, would be little affected, even if hotels and larger, international events would “definitely struggle for a few months”. But just one week later, with nine infections in Hungary, and

115,000 cases

globally (at mid-day, March 10), these hopes were looking decidedly optimistic, most especially with airlines announcing cancelled flights on an almost hourly basis.

Fast-changing

Under such fast-changing conditions, it is clearly difficult for the most informed expert to forecast the full domestic economic effects of the crisis. Nigel Rendell, economist with London-based Medley Global Advisors, told the BBJ that the risks to growth

were “clearly skewed to the downside” due to both the maturity of the economic cycle in Hungary, along with the impact of the virus on global activity and trade. He estimates a base-line GDP growth forecast of 3% for both 2020

and

2021.

Indeed, Rendell argues this could be “par for the course for the future of Hungary” as European Union funding “is likely to see a significant drop beyond 2021”. But, he warns, his prognosis “assumes there is some resolution to the coronavirus over the coming weeks”. Closer to home, Zoltán Török, head of research with Raiffeisen Bank in Budapest, admits “We’re making forecasts, we set up different scenarios, and then two days later, we revise them!” Ironically, in early January, he was toying with upping his baseline growth forecast from 3.2% to around 3.7%, but just as he was about to publish the revised increase, the coronavirus spread to Europe. “Our initial reaction was OK, we will not increase, we’ll leave the base case unchanged. That was only last week [early March],” he says. Török points to tourism, the hospitality sector, transport and logistics and, with imports from China interrupted, electronic manufacturing as sectors already showing significant downturns.

at the turn of the year, will be tempered. Török sees this comfortably around the targeted 3% by May, or possibly even April. But that is scant comfort in an otherwise gloomy economic picture.

“If the virus is long lasting, for much of the rest of the year, then I don’t think anyone knows just how badly growth forecasts could be slashed, neither for the global economy in general, nor Hungary in particular.” Török has already turned last week’s downside forecast of 1.6% growth for the year into this week’s base case. “I might change that, a little bit upwards, but it’s not going to be above 2%,” he told the BBJ on March 10. In London, Rendell admits that, given the unknowns, forecasting could soon become guesswork. “If the [COVID-19] virus is long lasting, for much of the rest of the year, then I don’t think anyone knows just how badly growth forecasts could be slashed, neither for the global economy in general, nor Hungary in particular.”

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News

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Budapest Business Journal | March 13 – March 26, 2020

Construction Industry Faces new Challenges Rising construction costs and scarcity of labor are seen as a major barrier to development and therefore market growth across the various private and public property sectors. However, there are also signs are that the development cycles are at their peak, experts suggest. GARY J. MORRELL

More than 60% of the 300 construction and development professionals at the Portfolio Construction Industry 2020 conference at the New York Place hotel expect construction activity growth to stagnate. At the same time, the overall view is that the industry has to adapt to the changing needs of tenants and building occupants and environmental regulations, as well as improve productivity so that projects can be completed on schedule. On the demand side, tenant demand is continuing to rise across the office, industrial and retail sectors, according to the Royal Institution of Chartered Surveyors, one of the sponsors of the event. “Although we have an issue with well qualified workers, from a construction perspective we currently have over capacity: We heard from the panelists and other

increases in Budapest to circa EUR 18 per sqm per month,” Tatár said. “For a 20,00 sqm office project, the construction time is two, to two-and-aquarter years; this is too long and should be one-and-a-half to one-and-threequarter years, as in many other countries it is shorter than [in] Hungary,” Tatár continued. A further question regarding project development is locational issues.

stakeholders in the sector that they have developed a significant capacity over the last few years; however, if demand slows down then this over capacity will have to be dealt with,” said Zsombor Barta, president of the Hungarian Green Building Council (HuGBC). “The other issue that Hungarian and EU regulations regarding energy efficiency are becoming stricter. The question is whether this will cause prices rises, or if developers have already priced this. This requires a certain percentage of renewables to be integrated into a project; this will [in turn] require a different way of thinking on the part of developers as the range of renewables they can calculate with is also limited in an urban area like Budapest,” Barta continued.

Huge Issues

“These are huge issues, as developers have to rethink their whole developments from a design and building engineering perspective if it is located in, for example, an area where district heating is not available and you can no longer count on solar-gain

within the calculation of renewables for a project. This will have a major impact and developers and designers are now being pushed to think in more innovative and more energy efficient ways,” he added. From the developer perspective , Tibor Tatár, commercial and retail development manager at Futureal Group, commented that the challenge facing developers over the last three year has been deadlines and quality. “We do not expect a fall in construction costs but a major step forward would be an improvement in construction quality and the keeping of deadlines. These are the most important issues for the industry. In the medium-term, the construction industry has to not only think about quality, but also shortening deadlines; this is the main challenge for the next four-tofive years,” he explained. “Fortunately, an increase in rentals came at the same time as the increase in construction costs and there was space for an increase in rentals as Hungary has the lowest in Central Europe,

25% cheaper

than [the] Czech [Republic] and Poland. I, therefore, believe there will be further

MIPIM Expo Postponed to June The annual MIPIM commercial property expo on the Cote d’Azur in France, which last year attracted more than 25,000 attendees to the Palais des Festivals in Cannes, has been postponed to June 2-5, due to concerns over the COVID-19 coronavirus, according to Reed Midem, organizers of the event. It had originally been scheduled for March 10-13. GARY J. MORRELL

The French-based company was determined that the event would go ahead as planned even as late as last week; however, when major international consultants such as Cushman & Wakefield, JLL, CBRE and Savills pulled out, that

became unrealistic, even though a dedicated medical team was planned to be in place, in addition to other precautions taken with regard to prevention of the spread of the virus. MIPIM, along with Expo Real in Munich, has become the most important venue for Hungary and other Central European countries to promote themselves and their

projects to international investors. The Municipality of Budapest, the Hungarian Investment Promotion Agency and the Association of Property Developers’ Round Table (IFK) have established a joint Budapest-Hungary stand at the event. Leading developers, such as Atenor, Futureal Group, Gránit Pólus Group, GTC Hungary, HB Reavis, Horizon Development and Wing planned to present projects due to hand over

2020.

“For HIPA, MIPIM is especially important, since it gives us the opportunity to present Hungarian real estate development projects to international investors at one of the most significant events of the sector. This enables us to strengthen our real estate infrastructure, which is of key importance for economic development,” said Róbert Ésik, CEO of the investment promotion agency.

“Fortunately, an increase in rentals came at the same time as the increase in construction costs and there was space for an increase in rentals as Hungary has the lowest in Central Europe, 25% cheaper than [the] Czech [Republic] and Poland. I, therefore, believe there will be further increases in Budapest to circa EUR 18 per sqm per month.” “In the past, projects were closed developments, developed as an individual entity with no essential connection to the wider society and communities around them. There has now been a major shift as many new developments have internal courtyards that are open to the general public, in addition to public green areas, parks and shops. The concept is changing from pure office buildings to more open and mixed developments,” concluded Barta of the HuGBC.

Growth Driver

Total real estate investment volumes have averaged around EUR 1.8 billion in recent years and the real estate sector is one of the main drivers behind Hungary’s GDP growth of approximately 5%, ranking it amongst the top EU countries in terms of economic performance, according to HIPA. The organizers of the joint HungaryBudapest stand including HIPA, Budapest Development Center (BFK), IFK and the Liget Budapest Project, had planned to showcase Hungarian developments valued in excess

EUR 5 bln.

Projects from the capital and the provincial cities of Debrecen, Miskolc, and Szeged were to be highlighted, including the category “A” Forest Offices Debrecen, under construction in Hungary’s second city, and the ELI-ALPS Research Center and New Science and Innovation Park in Szeged. The postponement reflects the impact the virus is having on international free trade and the investments markets, and the ability of companies to make and maintain contacts and promote their products.

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Budapest Business Journal | March 13 – March 26, 2020

Central European Media: A Struggle to Shake off old Habits in the Digital Age Fake news websites, nefarious chain mails, declining press freedom, polarized readers: Central Europe has experienced them all in the past decade. Just how bad the situation is, and how to improve media integrity, were the subjects of a conference arranged by the liberal Republikon Institute in Budapest on February 27.

Péter Krekó of Political Capital (left) and Roman Máca of the Institute for Politics and Society. These rankings, which include input from, among others, Freedom House, show the media landscape in Hungary and Poland deteriorating significantly between 2008-2017 (see graph).

KESTER EDDY

Media freedom is one of the safeguards against a tyrannical regime, yet all governments are wont to control the media, Tanja Porčnik, president of the Visio Institute, a Slovenian think tank, told the conference in the keynote address. “We are not talking about bad and good governments, any government will try to curtail these freedoms to some extent,” she said. But regarding Central Europe,

30 years

after the demise of communism, the results are, at best, mixed, as indicated by the “Expression and Information” rankings within the latest Human Freedom Index, a report compiled jointly by the Visio Institute and the Fraser Institute of Canada.

Propoganda Tool

“In Poland, the common knowledge would be that, especially in terms of the public media, the biggest crisis came after 2015, when the [ruling] Law and Justice party simply took over and created a propaganda tool out of the public media,” said Leszek Jażdżewski, editor of the liberal-leaning Polish magazine Liberté! But even Poland, he said, was better off than Hungary, which he deemed “a very different landscape.” Péter Krekó, executive director of Political Capital, a Budapest-based think tank, reinforced this point. “Poland is one of the most problematic cases, [….] but it is nowhere close to what we can see in Hungary right now, in terms of media concentration, where

500

media outlets

Tanja Porčnik of the Visio Institute. “Slovakia and the Czech Republic have stayed at about the same level. On the other hand, Poland and Hungary have been declining. After 2009, in Poland, there has been a drastic drop in freedom of expression and information,” Porčnik said by way of initiating discussion. But panelists felt that even this assessment was optimistic.

were put into one foundation. It’s a centralized, over-politicized, politically driven media empire that is spreading disinformation and fake news prime time,” Krekó argued. In contrast to the ownership structure in Hungary, Slovakia has a number of important media outlets in foreign hands, a factor that, perhaps counter-intuitively, strengthens media independence, argued Viera Zuborova, executive director of the Bratislava Policy Institute. Foreign owners “don’t bow so readily to government pressure”, she said. Zuberova also argued for education measures to counter increasingly extreme

Fake News Influenced 2018 Czech Presidential Election, Says Political Analyst Although the 2019 Human Freedom Index places the Czech Republic firmly at the top of the “Expression and Information” rankings among the V4 countries, in fact the country has seen a sharp decline in the quality and reliability of media in recent years, says Roman Máca, an analyst with the Institute for Politics and Society, a Prague-based think tank. Máca points to a growing concentration in media ownership, a trend reflected in the World Press

Freedom Index published by Reporters Without Borders, which placed the Czech Republic 40th in 2019, down from 13th place in 2014. More alarmingly, he says the country has experienced exponential growth in deceptive “alternative” news websites. “There was a milestone in 2014, [coinciding with] the start of the Russian aggression against Ukraine, [along with] the migration crisis. Fake news websites, mostly pro-Russian, mushroomed in

the Czech Republic,” Máca told the Republikon conference. The appearance of such sites, along with a storm of misleading campaigns via billboards, emails and social media, had an impact on the 2018 presidential election, in which the pro-Russian incumbent Miloš Zeman defeated the pro-European, independent candidate Jiří Drahoš by a mere 152,000 votes. “We saw all these fake news websites and social network campaigns operated from

News | 5

Hungary State News Agency Denounces Politico Story on Media Censorship as ‘Lie’ Barely had the sound systems for the Republikon conference been dismantled when a new controversy broke out over alleged political interference in the state-owned Hungary media. On March 2, Brussels-based website Politico published a story based on leaked emails that claimed bosses at MTI, the Hungarian state news agency, had ordered reporters to request permission before reporting on Greta Thunberg, the teenage Swedish environmental campaigner, and on European political subjects. The article also claimed reporting on “leading human rights organizations” such as Amnesty International and Human Rights Watch were banned, and that editors were issued with a list of subjects, including “migration, European terror, Brussels, church issues”, which required consent from above prior to publication. In response to enquiries on the allegations from Index, a leading Hungarian news website, the press office of the Hungarian state media said Politicoʼs information was “a lie based on conspiracy theories.” The office later followed up with a statement that the original article, and subsequent questions from domestic media were part of a “coordinated attack” designed to “create noise around a credible, restrained [state] news service”. The statement, published in full by Index, deemed the website, along with independent domestic outlets Azonnali and 24.hu as “fake news” producers that had earlier published misleading stories on the spread of the coronavirus.

propaganda and the growing menace of fake news, pointing to research that has revealed that 80% of Slovak youth receive their news only from blogs and associated comments on the internet. A mere 16% make an effort to fact check, she said, concluding: “Our younger generation is uncritical. They read everything on the internet, and they don’t have a historical memory to understand the context.”

Dubai, by a Czech professional working there in marketing and PR. They were supporting Miloš Zeman, because he’s a patriot and he’s fighting against Islam and migrants, and he likes Vladmir Putin and he’s for traditional [Czech] values,” Máca said. Drahoš, in contrast, was supposedly paid by American billionaire-philanthropist George Soros and wanted to invite Africans to settle in the Czech Republic. “The result was 51.4% for Zeman against 48.6% for Drahoš. I think the impact of fake news could have changed the final result,” Máca argued.

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News

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Budapest Business Journal | March 13 – March 26, 2020

Photos by Fortepan/TM

30 YEARS OF FREEDOM: THE RE-BURIAL OF IMRE NAGY

The Point of no Return for Communism in Hungary Imre Nagy, the martyred Prime Minister of Hungary’s 1956 Uprising and four other revolutionary leaders – Miklós Gimes, Pál Maléter, József Szilágyi and Géza Losonczy – were re-buried on June 16, 1989, 31 years after they had been executed. The ceremony became a solemn demonstration of the Hungarian nation against the ruling Communist Party and it marked a crucial milestone on the way to the final collapse of the regime. BBJ STAFF

The 1956 revolution in Hungary was crushed by Soviet troops, and the events were quickly labelled “counterrevolutionary” by the new communist regime led by János Kádár. Prominent leaders of the uprising Nagy, Gimes (the editor of Magyar Szabadság, or Hungarian Freedom), Maléter (Minister of Defense), Szilágyi (the head of Nagy’s secretariat) and Losonczy (Minister of State) were sentenced to death in a show trial and executed on June 16, 1958. Initially, they were buried in a prison courtyard, then in 1961 the bodies were wrapped in tarpaper and barbed wire, and placed in secret face-down in unmarked graves in parcel 301 of the Municipal

Cemetery in Budapest. Secrecy around the burial had been so tight that it took a seven-year investigation to relocate the bodies in 1988. It was taboo to talk about the four, or the 1956 revolution in anything other than the officially sanctioned terms of a “counterrevolution”, and it wasn’t until the regime began to destabilize in the early 1980s that the issue resurfaced. After the debtfinanced prosperity of the 1970s, economic problems turned into social ones, and Hungarian society began demanding an ever more public moral and political judgment of the system. Therefore, forming an opinion about 1956 and the legitimacy of the Kádár regime that ruled after the Soviets smashed the uprising merged. The underground opposition, which took root at the end of the

‘70s, also played a key role in restoring the legacy of 1956 by equating the figure of the dead Nagy with the true origin of Kádár’s reign. Facing the past became of critical importance in the democratic transition process. Thus the re-burial of Nagy gained symbolic significance in tearing down the Communist regime.

Matters Speed Up

Things were moving unexpectedly fast leading up to the re-burial. It had been seen as close to a miracle by many that, just one year earlier, a mass gathering was permitted to commemorate the 30th anniversary of the execution. That ceremony wouldn’t have been possible without the prior removal János Kádár from power in May 1988, which prepared the ground for more moderate figures to

take over the party. Yet, the fact that that the commemoration was brutally dispersed by the police clearly showed how halfhearted the authorities’ attitude still was toward freedom of speech. But the wheels of change had been set in motion. The Committee for Doing Historical Justice was set up and reached agreement with the party leadership about the re-burial. As part of the compromise, full rehabilitation was still deemed to be out of the question, though. Meanwhile, opposition forces were gaining ever more publicity, and within the party ranks it dawned on many that things could no longer be handled in the old-fashioned way. At the same time, guidelines from Moscow hinted that, instead of trying to stop the unstoppable, party officials should strive to taking the

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Budapest Business Journal | March 13 – March 26, 2020

lead in the democratization process with the purpose of solidifying their influence in a post-communist era. Against this backdrop, it makes sense that Imre Pozsgay, a member of the party bureau, dared to label the events of 1956 as a “revolt” on January 28, 1989. Although the statement officially caused huge uproar, some historians now point out that it might simply have been part of that above-mentioned Moscow-driven plan. Along the same lines, once the date of the re-burial was fixed, the party leadership started to communicate it as a “day of national reconciliation” with the intention of dulling the political edge of the occasion. This fueled fears among the opposition that the Communist Party could somehow hijack the event for its own purposes. The ruling elite logically wanted to mix as little politics into the upcoming ceremony as possible, but that was simply Mission Impossible. The issue was pure politics and, feeling the momentum, the opposition wanted to ride the wave of change by organizing a huge demonstration. The fact that it was not banned outright already shows the fading influence of party hard-liners, not to mention the fact that originally the event was going to be an ordinary funeral in a cemetery.

Public Pressure

However, by April 1989 public pressure to hold a mass commemoration had grown so intense that the authorities had no choice but to let it happen. Similarly, it was becoming clear that rehabilitation including retrial had to be put back on the agenda as well. The Opposition Roundtable, the consultation forum of the democratic forces, was also pushing for it as “it was no longer the issue of the widowers as it was the nation rehabilitating itself.” Although hardliners still expressed their concerns, the reformist wing won the argument. But one should not make the mistake of assuming the opposition was one homogenous whole; it had its own ideological fault lines. The dispute sparked by radicals like György Krassó concerned whether the funeral would be primarily about Nagy and his companions, who were all originally Communists, or about all the victims of the revolution. The matter was resolved by the Committee for Doing Historical Justice that came up with the idea of using an empty sixth coffin as a symbol for all those other revolutionaries who died in the fighting or were executed in its aftermath. More importantly than such niceties, however, the opposition hoped that massive attendance could demonstrate its political strength. After all, the Hungarian Socialist Workers’ Party still had some 800,000 members at the time. Undermining the legitimacy of the Kádár regime was one thing, gathering legitimate support for the organizations fighting for change was another. Showing force seemed crucial when the Opposition Roundtable was about to begin negotiations with the ruling elite. In the end the ceremony itself drew a crowd of some 250,000. The communist leadership had feared that a massive turnout could trigger turmoil on the streets, so secret agents were mobilized and sent to mingle with demonstrators en masse. The military and the Worker’s Militia were also put on alert. Those precautions proved baseless, though; the event passed in a tense, if solemn manner.

Speakers praised Nagy, his legacy and the revolution, but rather than talking about the necessity to continue or revive it, they all emphasized the importance of a peaceful transition with the purpose of achieving the objectives of 1956. Even the party rank-and-file was relatively pleased with the content of the speeches, except for two things. For one, they found it problematic that there was no word about their own losses in the fights.

News | 7

Still Remembered

He also said that, in 1956, the Hungarian Socialist Workers’ Party (as the local Communist Party was known) had taken away the future from the young; therefore, “not only a murdered young person is lying in the sixth coffin, but rather our next 20 or who knows how many years.” The speech was powerful enough tp put Orbán on the country’s political map, and is still remembered as the first openly anti-communist speech, symbolizing the country’s final break with the communist era. Left-wingers weren’t that enthusiastic about it at the time, though. Many proIt was taboo to talk about government organizations and media [...] the 1956 revolution in outlets condemned its message, claiming that, although Orbán said he was speaking anything other than the on behalf of the young, he represented just officially sanctioned terms a minority opinion. This criticism was shared by Ferenc of a “counter-revolution”, Gyurcsány, who was then vice president and it wasn’t until the of the Communist youth organization regime began to destabilize Demisz, but who would go on to become a Socialist Party (MSZP) premier, and today in the early 1980s that the leads DK, the Democratic Coalition. He left the MSZP in disgrace, following a leaked issue resurfaced. After the recorded in which he told party members debt-financed prosperity the leadership had lied “morning, noon and night” to win reelection. of the 1970s, economic Another future MSZP prime minister, problems turned into Gyula Horn, who, as member of the Communist militia in 1956 had helped social ones, and Hungarian crush the revolution, but as foreign minister society began demanding would earn a reputation as the politician who helped “tear down” the Iron Curtain an ever more public moral in August 1989, labeled Orbán’s speech as and political judgment “anything but solemn or moderate.” But the clash of civil society and of the system. political aspects could not overshadow the event. Even as it evolved into a political demonstration of unprecedented strength, where the executed martyrs became a The second and more serious complaint concerned the speech of one Viktor Orbán, symbol of the Hungarian nation that had a founding member of Fidesz (originally an suffered under Communism, it remained a acronym for Fiatal Demokraták Szövetsége, simple memorial service at its heart. The rehabilitation process of Nagy was or Alliance of Young Democrats) and completed a few week later in that fast something of a 27-year-old bearded paced summer, on July 6, 1989, when he firebrand liberal, who was the only one was acquitted by the Supreme Court. In an to openly demand that all Soviet troops odd twist of history, on the same day, the should leave the country for good.

man responsible for ordering his execution, János Kádár died. Politically, he had been “dead” since April 12, 1988, the last time he spoke in a party event. Although some 100,000 people still attended Kádár’s funeral on July 14 1989, the re-burial and the legal rehabilitation of the man he had replaced as leader of Hungary, Imre Nagy, had led to a dramatic speeding up of Hungarian politics and paved the way to the final key milestones of Hungary’s freedom after 40 years of Communist control. More on that in later issues. Next week we go back in time slightly, to look at the formation of the Opposition Roundtable and the increasingly vocal resistance to single party rule.

www.bbj.hu

Budapest Business Journal | March 13 – March 26, 2020

Business

AmCham Recommendation Package: Workforce Development, Supply #1 Challenge

The American Chamber of Commerce in Hungary has made its fifth recommendation package to Hungary’s government. AmCham President Farkas Bársony and CEO Írisz Lippai-Nagy discuss the main findings with the Budapest Business Journal. ROBIN MARSHALL

BBJ: This is the fifth “Cooperation for a More Competitive Hungary” recommendation package. What are the main take aways for the government? Farkas Bársony: Our recommendations target four areas in line with our policy strategy: general business climate; competitive workforce and education; innovation; and digitalization. These are the main areas where the chamber can have the most impact with its influence and expertise. The supply and development of a competitive workforce is the number one challenge right now that is why we continue to push hard for educational reforms. The revision and promotion of STEM [science, technology, engineering and math] education must be a priority. We continue to encourage the support of business-university cooperation and the expansion of dual education in order to enhance innovation. Írisz Lippai-Nagy: Simplifying business administration is also high on our agenda. Digital administration has certainly improved, but there is still much to reduce the burden on companies, especially in taxation. We also encourage the government to expand innovation incentives for SMEs

Last year, we sat down with Ministers Péter Szijjártó, Mihály Varga, László Palkovics and László Trócsányi and fruitful discussions were had with State Secretaries László György, Norbert Izer, József Bódis and Zoltán Nemessányi as well as various representatives of HIPA, the National Tax and Customs Administration, the National Research, Innovation and Development Office. ILN: In 2020, we have already met Minister of Justice Judit Varga, and we will have the honor to host Mayor of Budapest Gergely Karácsony soon. As you can see, it is a complex process involving lots of stakeholders on various levels. It would not be possible without the commitment of our members and the openness of our partners. We are all driven by the same goal: making Hungary more competitive.

Írisz Lippai-Nagy and Farkas Bársony. Photo by AmCham/Hajnalka Hurta to help them reduce the technological gap and become an integral part of the innovation ecosystem. BBJ: You talk about the need for further tax reform, especially of local business tax. The Competitiveness Council, on which AmCham has a seat, has also backed this. Do you have any sympathy with the view put forward by the Mayor of Budapest, for example, that the local business tax is vital for funding local services? ILN: We need to create a favorable and predictable tax environment for companies operating in Hungary if we want to be more competitive. The local business tax distorts competition, particularly affecting those companies who bring higher value-added investments, the drivers of the economy. We are aware, of course, that the LBT is one of the most important sources of revenue for local governments and making up for the lost revenue must be a priority. FB: AmCham has repeatedly recommended revising the definition of the local business tax base, and now calls for the expansion of tax-deductible items, such as personnel costs, and we created a detailed list of measures to reduce administrative burdens. The proposal of the National Competitiveness Council could increase investment and stimulate innovation. BBJ: How has the recommendation package changed over the years? ILN: AmCham always reflects on the latest economic trends and address the most pressing challenges the business community must face.

However, there is a number of recommendations and topics carried over from previous iterations. We are aware that changes of this magnitude need time to gain traction. Sometimes, even if we are in agreement about an issue, the road to implementation is long, with plenty of hurdles. FB: Patience is key. Reducing the corporate income tax to 9% was a hardfought battle which took years, but our efforts came to fruition. BBJ: What is the process for bringing all the elements of the recommendation package together? How long does it take? ILN: It takes roughly a year to compile the recommendation package. In the first phase, we collect and process the feedback on our previous proposals from minister and state secretary level meetings. FB: The finest, most devoted experts from our professional networks, the members of our policy task forces and committees provide the foundation of the package. This is where new ideas and agenda points are introduced, it is the ideal platform for knowledge and bestpractice sharing. We also gather input from members and partners at our flagship events such as the Business Meets Government Summit, organized with the Hungarian Investment Promotion Agency, one of our strategic allies. The policy team carries out further research and finetunes the proposals. The finished document is sent to Prime Minister Orbán and his cabinet to start a new series of meetings.

BBJ: Are you happy with the level of government uptake you have seen to AmCham suggestions? How has this improved over the past five years? ILN: We have built a strong working relationship with the government. They count on the expertise of our membership.

“AmCham has a powerful voice and our community has a lot to offer. We are ready to work with anyone to make a difference in Hungary.” Several policy measures and pieces of legislation introduced by the government are in line with our proposals. Innovation has become a top priority. AmCham has long pushed for tax and incentive system reforms to facilitate R&D and boost the local innovation ecosystem. In education and training, the business sector is slowly becoming an indispensable partner. Digitalization is also near the top of the agenda now. AmCham has advocated for stronger industry and higher education cooperation, effective career orientation and skills- and competency-based education. We have seen some good movements in the right direction in these matters. Administration is another area where Hungary has made great strides to make business easier. FB: AmCham has a powerful voice and our community has a lot to offer. We are ready to work with anyone to make a difference in Hungary.

www.bbj.hu

Budapest Business Journal | March 13 – March 26, 2020

Business | 9

Splicing American Go-getting with Hungarian Success Graphisoft boss Huw Roberts is on a double journey of discovery, plotting how he takes the architectural software company to greater heights and learning to navigate through life in a very different, very Hungarian world. And he appears to be thoroughly enjoying both. ROBIN MARSHALL

Huw Roberts. Photo by Graphisoft/Zsolt Reviczky

But he is also at pains to stress that the presence of an American at the helm of a genuine rarity, a “Magyar multi” (a Hungarian multinational, with staff from

countries,

speaking more than 20 languages) does not represent any form of cultural colonization. “The company is Hungarian. That informs how the business thinks of itself,” Roberts explains in an exclusive interview with the Budapest Business Journal. “Maybe an important part of the reason why I am here is to import a little American get-upand-go, with some global approaches, and introduce that to the Hungarian root and see what that splice produces.” But that does not involve rebranding it as anything other than what it is today, a global Hungarian player. “There is no aspiration to make this an American-style company. It is about bringing in and blending in the global experience and American drive I have to accelerate our growth to the next level. We are Hungarian-rooted, our HQ is in Hungary, and that is important to us. Graphisoft is really proud to be Hungarian, and we want to represent the country well on a global stage,” Roberts insists.

Revolutionary Past

Graphisoft certainly has done that to date. It can lay a serious claim to starting the building information modeling (BIM) revolution with the launch of Archicad, its proprietary architecture software, in 1984. Now in its 23rd iteration, it has both Windows and Macintosh versions, and offers end-to-end design and documentation workflow for architectural and design practices of any size. BIMcloud is another industry first, allowing secure, real-time teamwork between members of a project team, regardless of the size of the design project, the location of the offices, or the speed

“There is no aspiration to make this an American-style company. It is about bringing in and blending in the global experience and American drive I have to accelerate our growth to the next level. We are Hungarian-rooted, our HQ is in Hungary, and that is important to us. Graphisoft is really proud to be Hungarian, and we want to represent the country well on a global stage.” of the Internet connection. BIMcloud is available both in private and public cloud configurations. The company is also behind BIMx, which it describes as the most popular BIM presentation and coordination app on both the iPad and iPhone or on Android phones and tablets, as well as in any web browser, making it ideal as an on-site BIM companion. Roberts is not entirely new to any of this. He officially took over as CEO from Q2 of 2019, but initially joined the company in

October

2018

as VP for the Americas, a role he now considers an “audition” for the top job. But he was long aware of Graphisoft and its remarkable software before that, having started life as an architect himself, and having spent “18 great years” in the States working for a competitor, Bentley Systems. “The former CEO, credit to him, recognized that the company was at an

inflection point between eras after his very successful 10 years as CEO,” says Roberts. “There was a synergy between my experience in leadership roles at larger global companies – throughout my career being a transformation guy – and the owners wanting to take the company to the next stage, leveraging what they have, while adding new methods, systems and approaches to rise to the next level,” he explains. One obvious target for Roberts is to grow the company, which means expanding its share in the larger markets such as America, Brazil and China. “The good news is that in most of those markets we are number two,” he says with a laugh. “And even better, we are number one in many large markets in Europe, Japan and elsewhere. But great software alone is not enough. There are going to be many initiatives this year focusing explicitly on equipping ourselves to grow and make a difference in each market.”

Constant Evaluation

That is something of a mantra for Roberts. No company can rest on its laurels, he says, and nobody wants to be the next Kodak, the company that could not see the future staring right back at it until it went out of business. In other words, future growth cannot be built

Graphisoft at a Glance Founded in 1982 and headquartered in Budapest, Graphisoft has been a member of the Nemetschek Group since 2007. It has 600+ employees worldwide (400+ people in Budapest), and in addition to the Hungarian capital has locations in Beijing, Boston, Hong Kong, London, Mexico City, Moscow, Munich, Sao Paolo, Singapore, Tokyo and Venice. Its multiple award-winning

on past successes alone. Constant evaluation of what the market wants is key. “It is not enough to just have a great product nowadays. You need more than that to take to market. Our aim is not to simply be a software company, but to enable teams to create great architecture.” But that is only one part of Roberts’ life story right now. “I am on two adventures. One is the business side; how do you take an already successful company with excellent teams and really revolutionize its potential. Then there’s this personal journey: moving to another country, where you don’t recognize most of the words and even going to the shops is an adventure. You are completely out of your comfort zone, and that’s kind of cool.” He is on the expat rite of passage, taking Hungarian lessons, and says he is even beginning to identify as a Hungarian. The year began with an international kickoff meeting that saw Graphisoft partners flying in from all around the world. This was a significant event for Roberts, as it was his first as CEO, and his first opportunity to introduce his vision and outline the future direction. “I spoke a few words of Hungarian from the stage, and I was showing people around Budapest thinking ‘I am feeling proud of my city’,” he recalls.

software comes in 27 languages, with local adaptations (the quality of localization is seen as one of its strengths). According to the company, it is the market leader in Austria, Czech Republic, Finland, Germany, Hungary, Japan, New Zealand, Norway, Poland, Portugal, Romania and Switzerland, and the second biggest actor in Australia, Canada, Russia, South Africa, the United States and in many other European and Asian countries.

10 | 2

Business

www.bbj.hu

Budapest Business Journal | March 13 – March 26, 2020

New Dawn, New Decade, New Relationship In its latest series, “The Dawn of the New Decade”, the American Chamber of Commerce in Hungary looks into the most important events and trends shaping the global and regional economy and geopolitics at the beginning of 2020s. At the first event, on March 4, Iain Lindsay, British Ambassador to Hungary, gave an economic overview of possible trade agreements after Brexit. ZSÓFIA VÉGH

Following a brief overview of what has happened since the United Kingdom decided to leave the European Union, Lindsay talked about what to expect during the transition period as well as the type of new relationships Britain is expecting to have with other countries after the split. The ambassador stressed that the U.K. withdrawal agreement provides citizens

two partners will continue to work hard to enhance bilateral dialogue: the defense minister in Hungary signed a statement of intent with his British counterpart last July to broaden the existing engagement at a strategic level. Another main focus is the field of technology and innovation. There is also great co-operation underway in the field of education.

Diverse Issues

Iain Lindsay. Photos courtesy of AmCham with the certainty that their rights will be guaranteed going forward. Until the end of this year, Britain remains a de facto member of the European Union, and all four freedoms, including the freedom of movement and labor, will continue to apply for that period. “It means that if you choose to go the United Kingdom on New Year’s Eve this year, your rights are guaranteed from that point on. If, however, you miss your flight or you don’t go till the first of January of next year, you’ll be subject to a new immigration system, which is not based on geography, where you come from, but will be based on your skills, your experience, your language and abilities,” Lindsay said. This also means that the

100,000-150,000 Hungarians

currently living in Britain do not have to leave. Nevertheless, all business should be preparing for the future. There will be additional requirements for EU businesses

who export goods to the United Kingdom, including making customs declarations, he explained. Turning closer to home, the ambassador spoke about what Brexit means for the U.K.-Hungary relationship. The two countries have very strong links, particularly people to people at all levels, he said. Britain now has the largest Hungarian born population outside the Carpathian Basin, and is the third most popular destination for Hungarian students studying overseas. Some 1,500 Hungarian high school students will be traveling to the United Kingdom this summer for English language training. The country is also the biggest source of foreign tourists for Budapest. There are more flights to and from London than to any other city.

Friendship and Cooperation

“When I think about the bilateral relations with Hungary, I think about the long history of friendship and cooperation

since

1989,

the mutual respect,” Lindsay said. “Following our referendum in 2016, Hungary was the first EU member state to call for a fair settlement. And it would be fair to say that no other European member state has been as sympathetic, understanding, supportive, positive, constructive or respectful as Hungary has been and for that we are very grateful.” Britain’s changing relationship with the EU also offers an opportunity to strengthen bilateral relationships within Europe. “We must not miss this opportunity to build a stronger, broader and deeper relationship between the U.K. and Hungary,” the ambassador said. There are three particular areas of mutual interest Britain is concentrating on, all with the potential to significantly benefit both countries, Lindsay said. These are areas of focus in the U.K.-Hungary joint bilateral strategy that have been agreed on with the government here. The first is security, where the countries share a number of common interests. The

“We are working together on a diverse range of issues from nuclear energy to smart cities to the future of mobility to hydrogen technology. Clean growth and technology will be in the focus over the coming years, as we look to build this cooperation still further,” the ambassador said. The third field of cooperation, and probably the most interesting for the business community, is prosperity. Great Britain will be Hungary’s biggest non-EU trading partner: one-third of Hungary’s global trade surplus is with the United Kingdom, which is also the fifth largest foreign investor here with

40,16 jobs million

across the country. Britain’s largest supermarket chain, Tesco, is one of the biggest private sector employers in Hungary. There are a large number of British companies from other sectors including BP, Diageo, Shell, EY, PwC, etc. that are all operating in Hungary successfully. The two countries are working to further advance this relationship in particular in the field of automotive, infrastructure, clean growth and innovative technologies. “For example, we are working on a regional project with British embassies in Central Europe now to enhance cooperation in smart cities,” Lindsay said. The new Mayor of Budapest, Gergely Karácsony, has recently been to London to see examples of smart city solutions, he added. The United Kingdom will also continue to encourage the relationship between Hungarian startups and British investors. The country wishes to support R&D cooperation, providing opportunities for Hungarian companies to use the existing research infrastructure of British universities and R&D facilities. Britain is a go-to technology partner, and is not only interestedin selling technology and engineering skills but is also about working together with Hungarian partners to help develop intellectual property, Lindsay noted. Leaving the European Union is an opportunity to show what “global Britain” means, the ambassador said. “There is a lot to be excited about in our relationship with the wider world, the EU and Hungary. I see in this region a huge amount of ambition and potential.” Turning back to Hungary, the ambassador said that both he and his successor, due here in August, are determined to expand bilateral business. N.B. The second event in the AmCham series with U.S. Ambassador to Hungary David B. Cornstein, originally due on March 23, has been postponed.

www.bbj.hu

Budapest Business Journal | March 13 – March 26, 2020

COVID-19 and Financial Markets: Part I

The Corporate Finance Column

Comparison Between 21st Century Pandemics

In this first article in a three-part series, Les Nemethy and Sergey Glekov use their regular Corporate Finance Column to look at the likely economic effects of the coronavirus.

Year(s)

Mortality rate (estimates)

Reproductive Number (estimates)

Number of Deaths (as of March 11)

COVID-19

2020

2.5%

2.50

4,373

SARS

2003

10%

2.50

774

H1N1

2009

0.02%

1.46

203,000

Ebola

2014-2016

50%

1.25

11,325

Various sources: Johns Hopkins CSSE, CDC, WHO, BBC

COVID-19 has taken approximately 4,370 lives to date, and infected approximately 121,570 people in more than 60 countries, according to Johns Hopkins Center for Systems Science and Engineering, as of March 11. This article is not about the humanitarian aspects of COVID-19 (which are not to be underestimated); rather, we deal with three questions: as of today, knowing what one knows about the disease, can the disease be contained or will it become a pandemic; what effect can be expected on the economy and financial markets?; and what are the implications for personal investment decisions? This first article deals with the first question only. We should emphasize that we are not medical experts, and have formed our worldview on this subject by an extensive literature review. It should also be emphasized that there is a great deal about COVID-19 that even the experts don’t know. The virus has spread to all continents except for Antarctica. While the disease is believed to have originated in Wuhan, China, there are already more reported cases outside China than inside it. The death rate of COVID-19 is estimated at between 0.5% to 4%, according to the opening remarks of World Health

Organization Director-General Tedros Adhanom Ghebreyesus at a media briefing on February 24. The death rate may depend on factors such as quality of medical care, stage of disease at which the patient seeks medical care, age of patient, etc. Another important indicator of any disease is its contagiousness or, in medical jargon, its “reproductive number”: the expected number of additional cases that one case will generate, on average, over the course of its infectious period. From this point of view, COVID-19 is really more dangerous than seasonal flu, in that its reproductive number is 2.2, compared to 1.3 for most types of flu, according to the paper Early Transmission Dynamics in Wuhan, China, of Novel Coronavirus–Infected Pneumonia, published in the New England Journal of Medicine. In other words, not only is it deadlier than most types of flu (but not nearly as deadly as SARS), it is also more contagious—a kind of super flu. COVID-19 has an incubation period estimated at 14 days, during much of which there are no symptoms, but the carrier of the virus is still contagious. This is possibly what makes containment of the virus so difficult. Newer ways of transmission are being discovered, via feces and through dogs, for example.

Rapid Spread

There are at least two types of environments in which the virus can spread more rapidly, and is likely to be more deadly:

Business | 11

• poor countries, characterized by lower quantity and quality of medical facilities and few resources; and • authoritarian countries, where for political reasons, decision makers are in denial, or may constitute a bottleneck. The first cases of COVID-19 have recently been reported in more crowded and less affluent countries such as India, Indonesia and Nigeria. Poorer countries like Niger and Togo have even poorer medical infrastructure. Countries like this are potential powder kegs. (Given that the virus spreads through feces, countries known for extensive outdoor defecation, like India, could be particularly vulnerable). The degree to which the disease spreads in these poorer countries will be crucial to the global outcome. Even if developed countries with excellent containment programs, such as Singapore, are able to eradicate the disease, they may be faced with a difficult choice of cutting off travel from large swaths of the world, or will be under a threat of resurgence of the disease. The big question is whether containment is still possible, or if COVID-19 will develop into a pandemic. Given the covert ways in which the disease can be transmitted, and the large number of diagnosed cases, with many more cases possibly undiagnosed, it seems that we are well past the possibility of containment.

We see only three things that could eventually slow down the virus: Development of a vaccine (a possibility within 6-12 months); warming weather reducing transmission rates; and resistance levels building up in the human population (after large numbers of people have been exposed). At some point, governments may decide that the effects of the cure are worse than the disease. If you lock down tens or hundreds of millions of people, and production stops, the economy collapses, and governments have a very different set of problems. So, once the prevailing wisdom shifts to a view that containment has failed, we may see efforts to contain the disease called off or reduced, resulting in further contagion. According to the WHO, seasonal influenza epidemics are estimated to result in about 3 million to 5 million cases of severe illness per annum, and about 290,000 to 650,000 respiratory deaths. COVID-19 may well just enter into the general influenza pool, albeit greatly augmenting the number of deaths, perhaps into the millions, at least for a few years. (The world now experiences 1.35 million deaths from auto accidents a year, according to the Global status report on road safety 2018 by WHO. While the humanitarian cost is staggering, the world moves on.) This is perhaps the most unfinancial article we have written. But the assumptions in this article will underpin our analysis in the next two articles, namely the effects on the economy and financial markets; and (implications for your investment portfolio.

Les Nemethy is CEO of EuroPhoenix (www.europhoenix. com), a Central European corporate finance firm, author of Business Exit Planning (www.businessexitplanningbook. com) and a former president of the American Chamber of Commerce in Hungary.

Your essential Guide to Investing in Hungary including articles looking at the benefits available, case studies, EU funding, and commercial property investment.

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Budapest Business Journal | March 13 – March 26, 2020

PwC CEO Survey: As Pessimism Grows, so do Opportunities The ninth PwC Hungarian CEO survey, the results of which were presented to an invited audience at the National Gallery on March 5, proved something of a contradictory beast, though local company heads are not so very different from their global counterparts in most cases. ROBIN MARSHALL

Two-thirds (66%) of the 223 Hungarian CEOs personally interviewed between October and December 2019 for the survey predicted a slowdown in global economic growth in 2020 (and 60% predicted the same for the Hungarian economy), a record level of pessimism by some way. Global peers are not so very far behind, with 53% expecting a decline. (See Do You Believe Global Economic Growth Will Improve, Stay the Same, or Decline Over the Next 12 Months? chart) Here, immediately, was the first contradiction. As Barbara Koncz, Director at PwC Hungary’s Tax and Legal Services and one of the presenters on the night, put it, CEOs are negative about “the growth of the economy, not in the economy itself.” Indeed, asked about their own company’s prospects for revenue growth, 81% of CEOs remain confident. As has been the trend for five years now, that put Hungarian CEOs’ slightly ahead of their global peers (73%). (See How Confident are you About Your Organization’s Prospects for Revenue Growth Over the Next 12 Months? chart) One area where there was clear water between Hungarian and global CEOs was in the threat posed to organizational growth prospects by climate change. Where 64% of global CEOs saw a worry here, only 38% did so in Hungary. “We have had no snow this year (we had some in December, but none this year), spring arrived in February and we have had record temperatures,” PwC Hungary CEO Tamás Lőcsei said in his summary. Koncz offered one possible explanation: “We think CEOs see climate change

How Conﬁdent are you About your Organization’s Prospects for Revenue Growth Over the Next 12 Months? Conﬁdent about own revenue growth

84%

85%

81%

84% 82%

89%

90% 81%

88%

85%

82% 73%

72% 60% 47%

2012 2013

2014

2015

Hungarian CEOs

Global CEOs

N=223

N=1581

as an opportunity more than a threat,” she had said earlier. Two-thirds of Hungarian CEOs have recognized that investing in “green” initiatives provides a reputational advantage. Nearly half of the respondents realize that going green will afford significant new product and service opportunities. Lőcsei pointed out another contradiction over training and upskilling; while Hungarian CEOs worry that competitors

2016

2017

2018

2019

2020

will poach their trained staff, those CEOs who have embraced upskilling are realizing the rewards, such as higher workforce productivity, a stronger corporate culture, and improved talent retention.

Biggest Threats

What was seen as the biggest threat will come as no surprise to those in business in Hungary: skills shortages and changing workforce demographics continue to be

Do you Believe Global Economic Growth will Improve, Stay the Same, or Decline Over the Next 12 Months?

19%

9% 26% 46% 64%

39% 54%

30% 25%

47%

Improve

15% 18%

Stay the same

44%

54%

Decline

32%

46% 27%

15%

36%

42%

50% 66%

38%

11% 7% 1% 8% 10% 2012 2013 2014 2015 2016 2017 2018 2019 2020 N=223

25%

54% 46%

46%

22%

27% 29% 57%

59%

35%

37%

50%

Tamás Lőcsei, PwC Hungary, CEO

Global CEOs

Hungarian CEOs

54%

29%

49%

53%

38%

48% 28%

17%

23%

17%

”Now is not the time for business leaders to allow business conditions and trends to push them into short-sighted tactics. Now, more than ever, is the time to invest in people, better technologies and courageous innovations, even if it takes more bravery than it might have last year or a few years ago. As a leader you don’t have control over demographic trends. You need to come to terms with the skills shortage and talent ﬂight and embrace the necessity for upskilling. If you strike now, while the iron is hot, you will forge a company made of solid relationships while building a more agile workforce.”

29%

7% 5% 2012 2013 2014 2015 2016 2017 2018 2019 2020 N=1581

the main barriers to growth, at 88% and 70% respectively (the former scored 74% globally; the latter was not surveyed this year globally). For the first time this year, exchange rate volatility (66% locally, 59% globally) has overtaken overregulation and an increasing tax burden in the list of top threats for Hungarian CEOs. A new item among these threats is uncertain economic growth, which has risen to first place this year at the global level at 81%, and sixth in Hungary (58%). Global CEOs are increasingly concerned about cyber threats (73%), climate change and environmental damage, while Hungarian CEOs’ concerns in that respect have remained largely unchanged from last year. (See List of Top Potential Economic, Policy, Social and Environmental Threats to Organization’s Growth Prospects chart.)

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Budapest Business Journal | March 13 – March 26, 2020

What key Factors are Having the Greatest Impact in Shaping your Cybersecurity Strategy?

List of top Potential Economic, Policy, Social and Environmental Threats to Organization’s Growth Prospects

(respondents who ranked the factor ﬁrst)

(respondents who are concerned about the factor in question)

2018 2019 88% 70% 66% 64% 63% 58% 52% 51% 50% 49% 48% 47% 41% 40% 39% 38%

Hungarian CEOs 65%

2019 2018

46%

Global CEOs

Hungarian CEOs

42%

74%

Availability of key skills Changing workforce demographics

27%

59% 74%

Exchange rate volatility Over-regulation

23%

Rising employee beneﬁts and pension costs

81% 65% 73% 69% 73% 61% 63% 54% 73% 77% 64%

Uncertain economic growth Protectionism Cyber threats Speed of technological change Trade conﬂicts Changing consumer behavior Populism New market entrants Geopolitical uncertainty Policy uncertainty Climate change

N=223

N=1581

Two-thirds of CEOs consider overregulation to be one of the key barriers to growth. Those who consider this a threat are essentially concerned about data and cyber security, and compliance with industry regulations.

Future Predictions

Lőcsei also revealed some future predictions by Hungarian CEOs. A majority, for example, believe within 10 years the retirement age will have been raised from 65 to 70. “This will not solve the problems of the pay as you go pension system, but at least we will have five more years together,” he joked. Also by 2030, 60% of CEOs believe Hungary will have joined the euro. By 2035, most believe the average life expectancy at birth will be 80 years. Two years after that, in 2037, the CEOs predict

autonomous cars will be wide spread in Hungary. Finally, “Close to one-third of business leaders said that by 2042 Hungary would have managed to halt the decline in population.” He concluded by reminding his audience that difficult times also present opportunities; while optimism over economic growth may never have been so low since PwC took its first survey in Hungary in 2012, “This is something we can build up from.”

Other Highlights

CEOs are also confident about their company’s financial performance compared to competitors: more than half of them said they achieved better business outcomes than their competitors. Compared to the 2019 survey, the percentage planning to restructure

17%

Increasing complexity of cyber threats Growing public concern over data privacy Cybersecurity and data privacy regulations Vulnerabilities in supply chains and business partners Shortage of cybersecurity talent Adoption of Internet of Things (IoT) hardware and software Rising geopolitical tensions

11% 6% N=223

Introduction of ﬁfth-generation (5G) cellular networks

their organization has not increased. In contrast with global results, a much smaller percentage of Hungarian CEOs will rely on organic growth, and they are less likely to carry out acquisitions or form a strategic alliance. A breakout opportunity for organizations could be the launch of new products or services, which 60% of CEOs say they are planning to do over the next 12 months. More than half the Hungarian CEOs asked said they are not planning to take on new staff over the next 12 months. Compared to 2019, the percentage of respondents planning to increase headcount dropped by 15 percentage points. A third of CEOs feel that the key to their success is that they see clearly how they can create value for their clients. Another key factor is the ability to attract and retain talent, and to differentiate their products and services from the competition. It is increasingly important for CEOs to make it a strategic priority to come up with goals that provide a competitive edge. Those CEOs of companies at the forefront of upskilling are more confident about both Hungarian and global economic growth, if not over the next 12 months, certainly over a three-year period.

How Strongly do you Agree or Disagree with the Following Statements Regarding Climate Change? (respondents who agree with the statements) Hungarian CEOs

Global CEOs Our response to climate change initiatives will provide a reputational advantage for my organization among key stakeholders, including employees.

67%

75%

Our stakeholders have reasonable expectations regarding our approach to climate change.

56%

78%

My organization has assessed the potential transition risks to a “greener” economy.

55% 48%

My organization has assessed the potential physical risks to future climate events.

47%

Climate change initiatives will lead to signiﬁcant new product and service opportunities for my organization. 19% N=223

Business | 13

64% 56% 63%

My organization will beneﬁt from government funds or ﬁnancial incentives for “green” investments.

45% N=1581

Global CEOs 75% 48% 59% 38% 38% 34% 26% 19% N=1581

When asked about which emerging technology areas are most important for business and government to collaborate on, CEOs ranked digital privacy and cybersecurity, in roughly equal measure, as the two most important areas, followed in third place by artificial intelligence. (See What key Factors are Having the Greatest Impact in Shaping your Cybersecurity Strategy? chart)

“Hungarian CEOs have consistently ranked overregulation among the top threats for several years. In this year’s survey, nearly two-thirds of CEOs say they consider over-regulation to be one of the key barriers to growth. Most of them are also concerned about increasing legislation around online content, compliance with data protection regulations, and industry-specific questions.” Barbara Koncz, Director at PwC Hungary’s Tax and Legal Services

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Banking

Coronavirus a Further Threat to Weakening Forint

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Banks Face Financial Burden While FinTechs Stay Exempt

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Private Banking: Strong Growth in 2019 Unlikely to be Replicated in Next 12 Months

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Will FinTech firms replace high street banks in Hungary, or can they work together? Will the forint stabilize or continue to weaken, and what is the future for private banking, after a very strong performance in 2019?

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While banks are closing branches internationally and the techsavvy predict FinTechs could well dominate the financial competition, the reality shows that physical bank outlets are still preferred in Hungary, while the competition of big tech and traditional banks can also intertwine into a bilaterally beneficial cooperation.

Photo by Shutterstock

Banks Rush to Embrace Digitalization to Trump FinTech Competition

FinTech

companies to improve our services. Since the banks are the ones with the customers, the easiest way for FinTech companies to gain customers is if they work together with banks,” Budapest Bank says.

Budapest Bank’s approach seems to be similar; it says it believes that a bank can only be successful with the symbiosis of online and offline banking solutions.

People Business

CHRISTIAN KESZTHELYI

The past few years have seen international banks closing branches. More often than not, the banks’ PR communication attributes it to changes in user experience and the increasing demand for digital services. But while tech and crypto aficionados insist that physical banks will eventually become extinct, that vision still seems some way off. Digitalization has, naturally, reached Hungary; however, banks that the Budapest Business Journal spoke to insist that physical branches are still wellfrequented points of sale. UniCredit Bank Hungary says it focuses on digitalization to improve customer experience, efficiency and to automate processes, making them paperless where possible. This approach helps the bank “drive future banking value creation by developing innovative and efficient products and services relevant to our customers, while freeing up human capacities in our network,” UniCredit tells the BBJ. At the same time, it enables the bank to dedicate more time for customers and creates value for them through advisory services.

“FinTechs are focusing mainly on transaction and linked services, while banks’ advisory profile is becoming more and more bold, meaning that they do their activities partly in different dimension. This advisory approach applies not only to the retail business, but also to corporate, where our bank clearly puts a focus on increasing client face time and further improving the customer experience,” UniCredit Bank says. All of which means banks today are often looking to pursue partnership with FinTech solutions to improve the customer experience, as well as to introduce new services to their markets. “While a few years ago, most experts believed FinTech companies would be the great challengers of banks, these days it seems like they are more often than not looking for the possibility to cooperate with them. We see the same trend at Budapest Bank, as we are currently working with about

“In branches, we expect the focus to shift to consulting while the online world will become the platform for fast and routine transactions. Even though we live in a world of fast decision-making, where online services are becoming more important, people are still prudent and risk-averse. When it comes to consultation and financial questions, our experience shows that customers usually prefer personal meetings,” Budapest Bank says. “Because of this and to provide the best customer experience, we have not reduced the number of our branches in years,” the bank adds. Although the past 10 years have seen transactions migrating to digital channels to such an extent

The bank does admit that it has closed “some regular branches”, but notes that it also opened some “special branches” catering to more modern tastes: a fair-trade café and branch office in Budapest, a bistro and a bank office, also in Budapest, and a coworking space combined with a branch office in Székesfehérvár. MagNetBank also says that, while the younger generation may favor digital services for their banking errands, the older generation will seek the help of tellers in offices, meaning that when it comes to account opening, loan disbursement, cash-related transactions and financial counselling, physical branches are still preferred. When financial technology companies surfaced few years ago and started spreading rapidly due to their accelerated approach to opening bank accounts through mobile apps, traditional banks appeared to be in danger. The latter’s legacy systems lagged behind in functionality and speed, which tainted user experience.

that

98%

of money transfers go through digitally, UniCredit insists that traffic in branches has remained on a stable level, fueled by the increasing need for other products and services such as lending, investment and insurance. “Last year, MagNet Bank did not close any branches, however we hold a unique position, since we did not start up by opening hundreds of branches, and then slowly closing 30-50% of them,” MagNet Bank tells the BBJ.

Competition or Cooperation

While many FinTechs today still proclaim themselves claimants to the throne, practice shows that the competition is also often shaping into cooperation. “FinTechs are considered in our group as a source of inspiration rather than competition, as banks have significantly more capital and customers and can provide safety reassurances for clients,” UniCredit Bank tells us.

“While a few years ago, most experts believed FinTech companies would be the great challengers of banks, these days it seems like they are more often than not looking for the possibility to cooperate with them. We see the same trend at Budapest Bank, as we are currently working with about 10 FinTech companies to improve our services.” This comes in handy as traditional banks need to introduce new services using their legacy systems, while ensuring that the end user does not notice the changes during their everyday banking. “Efficient cooperation can be a winwin situation for both parties: with stable partnerships, FinTech companies can work out their business model, customers receive the newest services from these companies, while banks don’t have to develop new solutions and services themselves,” Budapest Bank adds. Trust is another important factor in play here. “In most cases, FinTech solutions also have banks as financial backups. The absence of trust is still a defining factor against FinTechs, whereas banks tend to enjoy bigger trust from clients. In some instances, branch-based personal administration is still required when dealing with everyday finances. In the field of credit disbursement, banks are unavoidable and FinTechs have not yet managed to replace them,” MagNet Bank notes.

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Budapest Business Journal | March 13 – March 26, 2020

Coronavirus a Further Threat to Weakening Forint Inflation will likely moderate at a 3-3.4% rate, Equilor expects. The coronavirus will have a negative effect on the economy, but will have a double-edged sword effect on the inflation rate: fuel prices may drop, but food prices will likely increase. By H2, its rate could decrease significantly due to oil price drop. “We forecast a HUF 6-8 annual rate of depreciation last year, which we still believe is relevant,” Dávid Németh, senior analyst of K&H told the Budapest Business Journal. The rates at either extreme may differ slightly from the previously forecasted HUF 323/EUR to HUF 328330/EUR (bottom) and to HUF 345-348/ EUR from HUF 343/EUR at the top. Despite increasing inflation and growth rates, during the second half of last year and even earlier this year, MNB communicated that it did not want to tighten conditions, increase interest rates, etc., which contributed to the weakening of the forint, Németh explains.

Although analysts had forecast a further weakening of the forint for 2020, the rate at which the Hungarian currency depreciated in the first two months of this year was much faster than expected. It hit a record low in February, exceeding HUF 340/EUR, which could be explained by a loose monetary policy and a weaker global economy. The coronavirus will surely only complicate things further. ZSÓFIA VÉGH

2019 had not been a vintage one for the Hungarian currency either, with it weakening quite considerably over the year. Among the main reasons were the monetary policy pursued by the central bank as well as carry trade deals (a popular trading strategy that involves borrowing at a low-interest rate and investing in an asset that provides a higher rate of return). There have been examples of what are presumably Hungarian institutional ADVERTISEMENT

investors using the forint to finance such deals, says Zoltán Varga, a senior analyst at Equilor Befektetési Zrt., and that may also have contributed to the weakening of the forint last year. Economic fundamentals alone would not justify the weakening of the forint but low interest rates and non-conventional monetary policy tools are a factor. “At the beginning of this year, we forecast an exchange rate reaching and even exceeding HUF 340/EUR,” says Varga. “This took place earlier than expected.”

Emergency Cut

Zoltán Varga Now, a new market situation has emerged as a result of the coronavirus and the response of central banks to it could significantly affect currency movements, Varga says. The National Bank of Hungary, by reducing liquidity through the reduction of currency swaps started a consolidation process in mid-January. As a result, central bank overnight rates have increased.

Contradictory Goals

The MNB doesn’t want the forint to continue to weaken suddenly and significantly, and it doesn’t want interest rates to increase either; these are two somewhat contradictory goals it has to balance. Last week’s emergency interest rate cut by the Federal Reserve has given the MNB some time as with the drop between interest rates, the need for an intervention has been eliminated (at least temporarily). The Bank of England followed suit on March 11, and some loosening is also expected from the European Central Bank (on March 12, after this issue went to print), or it might even increase the budget of its asset purchase program, adding more liquidity on the markets. All these moves would favor the currencies of emerging markets, meaning the forint would likely strengthen without the MNB’s intervention. The unwinding of leveraged positions in the carry trade deals, due to panic on the markets last week could also help strengthen the forint, Varga adds. Varga expects the MNB to favor a weaker forint (rather than higher interest rates). “The aim of the MNB, though, is that the weakening is done at a moderate, calculable pace that may boost the economy,” Varga says. A verbal intervention in February by MNB deputy governor Márton Nagy was sufficient to curb depreciation but that may prove little. Should market conditions fail to improve, further intervention could be needed, the expert notes.

The Fed’s emergency rate cut last week may help curb forint’s rapid depreciation seen since last October and may even stabilize it, Németh says. But it still greatly depends on what action MNB will take, he adds.

“We cannot tell when it [the coronavirus epidemic] ends, what extent it will affect the tourism industry, the economy in both the European Union and Hungary. […] In the shortterm, it may increase prices. Should the epidemic be prolonged, disinflationary effects may be more marked, but we cannot see that at this point.” “The inflation rate will likely stay high, so I still see a reason for the MNB to increase interest rates to stabilize the forint.” If it doesn’t do so in March, the forint could start to weaken again, he adds. There are some fundamental causes as well, including a negative current account, high inflation and slowing economy. How much the forint’s exchange rate will change is also largely dependent on the impact of coronavirus, the expert notes. “We cannot tell when it ends, what extent it will affect the tourism industry, the economy in both the European Union and Hungary,” he adds. The monetary policy response also depends on how the MNB assesses the coronavirus’s effect on the economy and the inflation. “In the short-term, it may increase prices. Should the epidemic be prolonged, disinflationary effects may be more marked, but we cannot see that at this point,” Németh says.

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Chinese Bank Opens in Hungary China Construction Bank Corporation, the world’s second largest credit institution, has opened a branch in Hungary on the basis of its assets, according to a statement released by the National Bank of Hungary (MNB) on February 21, writes mfor.hu. The institution, which will participate in corporate lending in Hungary, has already been registered by the MNB to start its activities. The Hungarian operations will be carried out as a branch of China Construction Bank (Europe) SA, which is based in Luxembourg.

Erste Group’s Operating Profit up 8.7% Erste Group’s annual operating profit increased significantly by 8.7% to EUR 2.97 billion, writes novekedes.hu. This is a relatively rare phenomenon in the European banking sector at the moment, but it provides a strong foundation for future growth, said Bernhard Spalt, CEO of Erste Group Bank AG. Thanks to the bank’s regional presence, it operates in Europe’s most dynamically developing economic area, with Central and Eastern European countries’ GDP growth more than twice the average growth rate of the Eurozone. Erste Group intends to share the good results achieved in 2019 with its shareholders, and is therefore proposing to increase the dividend per share to EUR 1.5 at the annual general meeting, novekedes.hu notes.

K&H Bank Sees HUF 50.9 bln Profit K&H Bank’s net profit was HUF 50.9 billion in 2019, 7% higher than a year earlier, excluding extraordinary items, says mfor.hu. The year-on-year increase in profit is due to the fact that K&H’s operating income grew by 6.7% yearover-year in 2019. The latter would have increased more if the bank had not had to pay a transaction tax of HUF 27 bln to the Hungarian Treasury. Among its revenues, net fees and commissions increased by 10%, mfor.hu adds.

Variable-rate Home Loans to Become More Expensive As of February 26, the 12-month Budapest Interbank Forint Loan Rate (BUBOR) rose to 0.75%, which could increase the monthly repayment of hundreds of thousands of home loans by HUF 1,0002,000, as this is often considered as a reference for determining the interest rate on floating rate loans, bankmonitor.hu points out. The 12-month BUBOR for one-year mortgages on February 1 was

China Construction Bank Corporation, founded in 1954, is one of the “big four” banks in China. Photo by tester/Shutterstock.com

0.37%, resulting in a down payment of approximately HUF 54,500 on a 20-year, HUF 10 million loan. From March on a similar new loan, the monthly repayment will be almost HUF 2,000 more, which means an increase of more than HUF 450,000 in total repayments.

5 Switch Banks Daily on Average in Hungary On average, more than five Hungarians have said goodbye to their former bank every day for the past three years, according to azénpénzem.hu, based on data from the National Bank of Hungary (MNB). The European Parliament decided in the summer of 2014 to make bank switching easier in EU Member States. By the end of October 2016, the legislation corresponding to the Council Directive was transposed into Hungarian law, enabling easier bank account migration.

MNB Issues Warnings to Revolut, Transferwise and PayPal The National Bank of Hungary (MNB) supports FinTech innovations that provide simpler, cheaper financial services, but only if they guarantee financial stability and customer safety, the MNB told state news agency MTI. Although its consumer protection monitoring tools for cross-border FinTech companies are limited, the central bank says it will act decisively if it detects systematic breaches, misleading information or other shortcomings affecting Hungarian consumers, even minor ones. In Hungary, ever more FinTech companies are offering free account management, cash transfer and ATM cash withdrawal, close to interbank or mid-rate currency exchange, and various credit card services. U.K.-based Revolut Ltd. and TransferWise Ltd., and PayPal (Europe) S.á rl et Cie, SCA, have become the most popular service providers in Hungary to date.

INSIDE VIEW

Regulatory Changes to the Hungarian Bond Market Dr. Gergely Szalóki

Dr. Virág Pagluta

Partner

Associate

SCHOENHERR HETÉNYI ATTORNEYS AT LAW

The Hungarian Parliament adopted several amendments to the Hungarian capital markets act, effective as of December 27, 2019, in order to adhere to the relevant rules of the European Union and also to make it easier for Hungarian companies to issue bonds by introducing more lenient information and publication rules for such issuances. Changes Introduced

The definition and rules of public placements have been harmonized with the relevant EU regulation and although this results in the wider scope thereof, the exemption from the requirement of submitting a prospectus has also become wider. In the same vein, registering the securities to a multilateral trading platform will no longer automatically result in a public placement. This also means that no prospectus will be required in case the bonds are introduced to the XBond trading platform operated by Hungarian Stock Exchange; a simple information memorandum is sufficient.

XBond Trading Experience Bonds issued under the Hungarian National Bank’s (MNB) Bond Funding for Growth Scheme (BGS) must be introduced to a trading platform. To meet this requirement, on July 1, 2019 the Hungarian Stock Exchange launched the XBond trading platform, open only to eligible issuers and investors, where bonds may be traded without the need for a prospectus. After half a year of experience, the Hungarian Stock Exchange fine-tuned the terms and conditions of the XBond trading platform by further simplifying the pricing and offer process, to make it more convenient for market players to use.

liquidity on the bond market. The MNB purchases 50% of the bonds with an eligible rating issued by nonfinancial corporations, initially up to the aggregate amount of HUF 300 billion (approximately EUR 90 million). The MNB purchases the bonds under market value and may purchase a further 20% on the secondary market at market value (i.e. the aggregate stake of the MNB may reach 70%). Recently, the MNB reconsidered the terms and conditions of the BGS and introduced new T&Cs for issuing companies applicable as of January 1, 2020. The most relevant change is that the MNB increased its initial budget from HUF 300 bln to HUF 450 bln (approximately EUR 136 mln). Pursuant to the new rules, if a bond rating falls below “B+”, the issuer may not procure another credit rating to try to reenter the BGS (in accordance with the principles applied by the Basel Committee on Banking Supervision, i.e. the worst credit rating should apply). In addition, the issuer is liable for the authenticity of the information and data disclosed to the credit rating agency, including its business plan projecting the purpose of the (successful) bond issuance. The issuer must also undertake in the information memorandum/prospectus that the funds raised by the issuance will be used to finance the purpose projected in the business plan. As of February 1, 2020, the MNB harmonized the terms and conditions of the BGS with the relevant EU regulation considering the definition and rules of public placement.

BGS Impact

Recent statistics show that the BGS has already had an impact on the Hungarian bond market. The value of the bonds issued last year increased by HUF 235 bln (approximately EUR 71 mln) in the second half of 2019 and most were issued under the BGS. Approximately 60% of these bonds have been subscribed by the MNB. Considering that the central bank increased the budget of the BGS, we expect this growing tendency will continue in 2020.

Revised BGS Terms and Conditions

The MNB launched the BGS on July 1, 2019, aiming to encourage Hungarian corporations to rely on other financing forms than bank loans by providing

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Banking ///briefs

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Banks Face Financial Burden While FinTechs Stay Exempt

“However, as long as there is a percentage-based fee on these types of transfers, people will tend to use cash (or foreign FinTech companies such as Revolut) to facilitate these payments,” Fisher warns.

Banking Lobby

“Banks have been, as far as we know, lobbying to change the transactional duty to a yearly tax instead of a tax payable per transaction, so they could offer better fees for small transfers. This would be in the state’s interest in our opinion, because it could reduce cash payments and would further reduce the possibility of tax evasion, together with a number of other measures introduced by the government,” Fisher says.

The Hungarian banking sector is still subject to a sectoral tax. While local banks are doing much better today than at the beginning of the previous decade, right after the global financial crisis, some worry the burdens they bear might limit their competition against foreignbased FinTechs.

“The extraordinary tax is still a significant burden on banks. When introduced, it was based on the banks’ assets held in 2009. Therefore, it did not consider changes in the size of the banks, nor did it consider the difference in the profitability of the banks. The latter issue still exists: the bank tax must be paid without considering a given bank’s profitability.”

CHRISTIAN KESZTHELYI

When Hungary introduced its extraordinary bank levy as a temporary measure for three years in 2010, uncertainty ran through the local bank sector. Financial institutions feared the tax would wipe out profits. The government at the time argued that banks had long profited from their business in Hungary; now it was time to share the burden. What initially started out as temporary measure was made permanent in 2013, and is still present today, albeit at a lower rate. “The extraordinary tax is still a significant burden on banks. When introduced, it was based on the banks’ assets held

2009.

Therefore, it did not consider changes in the size of the banks, nor did it consider the difference in the profitability of the banks. The latter issue still exists: the bank tax must be paid without considering a given bank’s profitability,” Ádám Fischer, head of legal services at Niveus Consulting Group tells the Budapest Business Journal. As to the tax base, in 2013, the bank levy was amended and is now based on the banks’ assets held two years prior to the subject year. This means that the tax is now more proportional to the actual (and not the past) size of a given bank. “It also means, that due to the expansion of the banks’ activities in the past decade, the total amount of the bank tax paid has also increased,” Fisher says. The Budapest Business Journal was interested to learn how local banks see the tax environment, and how related levies affect their operations. The banks that answered directed us towards the

Ádám Fischer Hungarian Banking Association and it was duly approached for a statement. By the time we went to print, however, we had not received a response. “We do not prepare any statistics on the profitability of the bank sector,” Fisher of Niveus says about how it may be affected by the tax environment. “Based on the public news, the bank sector is in a pretty good shape right now, with profits exceeding the pre-crisis amount. This does not mean that the first years in the past decade were easy, but it seems that the banks mainly survived this period,” he adds. Another sectoral tax levied on banks is the so-called transactional duty, which needs to be paid for each transfer and cash withdrawal. The amount is a certain percentage of the transaction, although the amount is capped per transaction.

Driven to Cash

“The transactional duty is said to be one of the reasons why people are using so much cash in Hungary. Banks have lobbied for a long time to reduce the transactional duty,” Fisher says. The significant reduction of transactional duty on contactless card

payments as opposed to normal card payments has worked as an incentive: banks started promoting contactless bank cards, which are often considered more advanced and safer. Today, Hungary is a leader in such cardholder numbers in the region. “As of March 2, real-time bank transfers were introduced in Hungary. Together with that it is now, theoretically, possible to transfer an amount to someone based on other identifiers (e.g. mobile phone number), so you do not need to remember anyone’s bank account number. This can promote bank transfers instead of cash payments even between individuals,” Fisher says. Such services are similar to those that mobile app-based FinTech solutions such as Revolut or TransferWise offer: users can transfer money to other users by only knowing their mobile phone number. Banks in Hungary today also offer the possibility to request payments from others, not only to transfer money to someone else. Clients can use bank transfers to split up bills at the end of a dinner for example simply by including everyone’s mobile phone number to the app.

Hungarian banks also face certain regulatory fees that cannot be considered as taxes, but still pose a financial burden for local operators. Such fees include a supervisory fee payable to the National Bank of Hungary, as well as fees paid to the National Deposit Insurance Fund. “We consider the most important issue is to reform or eliminate transfer tax to support bank sector instead of the cash payments. To reduce the government’s tax losses, it could increase the transactional tax on cash withdrawals, further supporting the bank sector,” Fisher says about possible improvements to the sector’s levies. A reform of the sectorial taxes levied on banks, however, goes beyond offering banks tax relief. It could help them stay in competition against the increasing number of FinTech firms. “Although FinTech services target different activities than banks, and have their pros and cons, currently due to the high tax burden on Hungarian banks, people tend to use FinTech companies’ services where there is no actual need for that,” Fisher argues. Ostensibly, the only way to help Hungarian banks stay competitive with U.K.- or Baltic-based FinTech companies is to lower the fees they have to pay to the state. “This would also be in the interest of the Hungarian government, because keeping the payments in the hands of Hungarian banks increase the likelihood that taxes will be paid here,” Fisher concludes.

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Private Banking: Strong Growth in 2019 Unlikely to be Replicated in Next 12 Months Hungary’s private banking sector, where many of the country’s high-earners deposit their savings for safe keeping, saw its total assets under management rise to a record high of HUF 5.720 trillion (EUR 17.3 billion) at the end of last year, a very healthy 21.9% increase on the 2018 figure, according to the latest industry analysis by Blochamps Capital, a Budapestbased, private banking advisory firm. István Karagich, founding chief executive of Blochamps Capital, talked to the Budapest Business Journal about the sector and his hopes for the future. István Karagich

KESTER EDDY

BBJ: This growth in assets makes the sector look good. Is it sustainable this year, leaving out the possible concerns of the coronavirus for the time being? István Karagich: 2019 was an excellent year for some private banking service providers, which have set the bar high. Some funds closed with a yield above 30%, but, of course, not every portfolio was like this; some gave returns of just 3-10%. It’s a difficult task for private bankers in 2020, because their clients expect returns at the upper end, yet these clients are risk averse. You know, high returns entail high risk! But overall, my expectation for 2020 growth in assets under management (AUM) is around 15%. BBJ: So, what was behind this growth? IK: The main driver, for the last two-three years, has been net new assets, meaning money transferred by clients into their private banking accounts. This was mainly from company dividends. Previously, growth was led by yields from funds invested. BBJ: Who makes the grade as a private banking client in Hungary? I mean, what are the entry thresholds, and how do these compare with wealthier countries? IK: The average entry threshold is more than HUF 70 million, so around EUR 220,000. It was lower earlier, but it should rise further. In Germany and Austria, entry levels are typically between EUR 0.5-1 mln, and in the United States, more like USD 1 mln. In Switzerland, CHF 1 mln. BBJ: How is the sector now in Hungary? How many are competing in this rather small market? IK: There are 14 active private banking service providers now in Hungary, that’s two or three down on when we spoke in 2018. We estimate there are between 18,000 – 20,000 individual high net worth individuals (HNWI) as clients; that’s not really changed much in the past two years. But many clients hold multiple accounts, so there are nearly 44,600 accounts in total. BBJ: And the market leader, is that still OTP? IK: Yes, OTP holds some 23,170 accounts, more than half of the total in the country.

And that’s about 1,370, or 6%, more than two years ago. OTP alone manages about HUF 2.116 tln, or nearly 37% of total market assets. MKB is in second place, with an AUM of about HUF 690 bln, just one third that of OTP. In third place is Raiffeisen, with HUF 620 bln in AUM. There are 396 employed in the private banking sector and, on average, each banker manages almost HUF 14.5 mln (EUR 43,000) in assets. BBJ: What are the main trends that you’ve seen in the private banking sector in the last 12 months? IK: In private banking here, we very often lag the international trends, but you know the basis of the wealthy people is completely different. The high net worth individuals are a much smaller group than, for example, in Poland or Austria.

Within Hungary, these 18,000 – 20,000 HNWI include a small elite comprising just 2,000-3,000 people. The remainder today have less ability to get dividends from their companies because they don’t have government contracts. They have a working company, but they have to work very hard to get dividends out of their companies. The majority have lower dividends than previously. Maybe they just sold their companies. A lot of company buy-outs have happened in the last three-four years. A few, concentrated groups have come up, like magnetism. But if they buy 10 different companies, these magnets, it means that 10 different private banking clients have lost, forever, their ability to get growth from dividends. They still have the money from the company sale, but this money will only

Special Report | 19 work as a portfolio investment. All in all, these company dividends may be boosted, but it is being concentrated in fewer hands. BBJ: A year or so back, you were predicting more mergers and consolidation in the private banking sector. What about now? IK: Yes. I thought that HSBC would be one of those banks coming here. They were very close. Last year they made it public that they are again interested in Hungary. Right now, it seems they’re coming again, but in which form, no one knows. Buying an existing service provider would be a very reasonable way, but no one knows. A year ago, it was behind closed doors and chit chat, but right now, it seems much more serious. My other bet was the Chinese line. In the last three years, four different Chinese banks have come to Hungary, and it seems that the second biggest is coming as well this year. BBJ: They are doing what, general commercial banking? IK: I think for them, Hungary is just a bridgehead for entry into Europe. It seems Hungary is a very good first step for them. BBJ: I know it’s early days, but I have to ask: in what ways do you think the coronavirus crisis could affect private banking? IK: You can never know. In this phase, I think, I hope, the world will answer this problem. The easy answer is that maybe the coronavirus will attack older people, and maybe the Hungarian private banking clients are older, but I don’t think we will see a big effect. These people are very much separated, and they try to hermetically close themselves away from these dangers. I think we had a big slice of luck in that in the first four weeks, the virus was concentrated in China, and the whole world and Europe had enough time with these modern societies to prepare to handle this. But, yes, economies everywhere will be hurt.

20 | 3

Special Report

www.bbj.hu

Budapest Business Journal | March 13 – March 26, 2020

Commercial Banks

(1)

Rank

Ranked by total assets in 2018

Company Website

total assets in 2018 (HUF mln)

aFteR tax pRoFit in 2018 (HUF mln)

eqUity (HUF mln)

no. oF bank bRanCHes in HUngaRy in 2018

pRivate banking

oWneRsHip (%) HUngaRian non-HUngaRian

top loCal exeCUtive CFo maRketing diReCtoR

addRess pHone email

otp bank nyRt.

8,506,187

173,442

1,510,943

380

✓

Investor (22.10), other (1.80) Investor (59.50), other (16.60)

sándor Csányi – –

1051 Budapest, Nádor utca 16. (1) 473-5000 informacio@otpbank.hu

k&H bank ZRt.

3,229,248

57,049

302,793

205

✓

– KBC Bank N.V. (100)

david moucheron – –

1095 Budapest, Lechner Ödön fasor 9. (1) 328-9000 bank@kh.hu

UniCRedit bank HUngaRy ZRt.

3,051,150

58,669

336,150

✓

– UniCredit S.p.A. (100)

balázs tóth Liliana Beric –

1054 Budapest, Szabadság tér 5-6. (1) 301-1271 info@unicreditbank.hu

eRste bank HUngaRy ZRt.

2,458,762

57,500

348,324

141

✓

Corvinus Befektetési Zrt. (15) EBRD (15), Erste Group Bank AG (70)

Jelasity Radován Ivan Vondra –

1138 Budapest, Népfürdő utca 24–26. (40) 555-444 uszolg@erste.hu

RaiFFeisen bank ZRt.

2,409,761

23,008

207,815

✓

– Raiffeisen-RBHU Holding GmbH (100)

györgy Zolnai – –

1054 Budapest, Akadémia utca 6. (40) 484-848, (1) 484-4400 info@raiffeisen.hu

Cib bank ZRt.

1,902,350

14,265

220,744

✓

– Intesa Sanpaolo Holding International S.A. (100)

pál simák – –

1027 Budapest, Medve út 4–14. (1) 423-1000 cib@cib.hu

Ádám balog – –

1056 Budapest, Váci utca 38. (1) 327-8600 kommunikacio@mkb.hu

www.otpbank.hu

www.kh.hu

www.unicredit.hu

www.erste.hu

www.raiffeisen.hu

www.cib.hu

mkb bank ZRt.

1,858,633

25,274

159,624

✓

Metis Magántőkealap (45), Pannónia Nyugdíjpénztár (10), employees (15) Blue Robin Investments SCA (30)

bUdapest bank ZRt.

1,221,684

9,343

146,007

✓

Corvinus Nemzetközi Befektetési Zrt. (100) –

koppány lélfai – –

1138 Budapest, Váci út 193. (1) 450-6000 info@budapestbank.hu

József vida – –

1122 Budapest, Pethényi köz 10. (1) 202-3777 info@tbank.hu

www.mkb.hu

www.budapestbank.hu

magyaR takaRéksZövetkeZeti bank ZRt.

1,165,872

7,709

33,145

✓

Magyar Takarék Befektetési és Vagyongazdálkodási Zrt. (55), savings cooperatives (43), other (2) –

574,350

1,542

7,764

✓

Citibank Europe Plc. (100)

kevin a. murray – –

1051 Budapest, Szabadság tér 7. (1) 374-5000 citibankmagyarorszag@citi.com

–

– ING Bank N. V. (100)

tibor bodor Gyula Réthy –

1068 Budapest, Dózsa György út 84/B (1) 235-8700 communications.hu@ ingbank.com

www.takarekbank.hu

Citibank eURope plC. magyaRoRsZÁgi Fióktelepe

ing bank n.v. magyaRoRsZÁgi Fióktelepe

www.citibank.hu

www.ingwholesalebanking.hu

570,723

1,281

46,732

www.bbj.hu

Budapest Business Journal | March 13 – March 26, 2020

aFteR tax pRoFit in 2018 (HUF mln)

no. oF bank bRanCHes in HUngaRy in 2018

pRivate banking

oWneRsHip (%) HUngaRian non-HUngaRian

top loCal exeCUtive CFo maRketing diReCtoR

addRess pHone email

levente szabó – –

1082 Budapest, Üllői út 48. (1) 452-9100 takarek@takarek.hu

Rank

total assets in 2018 (HUF mln)

Special Report | 21

Company Website

takaRék keReskedelmi bank ZRt.

543,895

1,830

22,445

✓

Takarék Jelzálogbank Nyrt. (51)Magyar Posta (40) Magyar Takarékszövetkezeti Bank Zrt. (7.50) Other (1.50) –

sbeRbank magyaRoRsZÁg ZRt.

365,976

1,348

44,534

✓

– Sberbank Europe AG (99) Türkise Halk Bankasi (1)

Richard szabó – –

1088 Budapest, Rákóczi út 7. (1) 328-6666 info@sberbank.hu

gRÁnit bank ZRt.

353,968

1,030

13,277

✓

Pannónia Nyugdíjpénztár (9.90), E. P. M. Kft. (61.20), other (18), MKB Nyugdíjpénztár (10) –

Éva Hegedűs – –

1095 Budapest, Lechner Ödön fasor 8. (1) 235-5900 info@granitbank.hu

CommeRZbank ZRt.

289,776

726

29,457

✓

– Commerzbank Auslandsbanken Holding AG (100)

klaus Windheuser – –

1054 Budapest, Széchenyi rakpart 8. (1) 374-8100 info.budapest@ commerzbank.com

bnp paRibas magyaRoRsZÁgi Fióktelepe

269,823

1,087

2,487

–

– BNP Paribas S.A (100)

Jean-François bandini – –

1051 Budapest, Széchenyi István tér 7–8. (1) 374-6300 info.hu@bnpparibas.com

kdb bank eURópa ZRt.

230,216

900

20,241

✓

– Korea Development Bank (100)

yoon Jae keun – –

1054 Budapest, Bajcsy-Zsilinszky út 42–46. (40) 374-9900 info@kdbbank.eu

bank oF CHina (HUngÁRia) ZRt.

193,896

296

16,346

✓

– Bank of China Ltd. (100)

xu Haifeng – –

1051 Budapest, József nádor tér 7. (1) 429-92000 bocbp@pronet.hu

magnet bank ZRt.

151,200

1,753

12,775

–

FR-Invest Kft. (72), individuals (28) –

Zsolt Fáy, János salamon – –

1062 Budapest, Andrássy út 98. (1) 428-8844 info@magnetbank.hu

dUna takaRék bank ZRt.

88,508

165

4,390

–

Emese Balogh (19.90), Garancsi István (19.90), Illés Zoltán Pál (19.90), individuals (40.30) –

Zoltán illés – –

9022 Győr, Árpád út 93. (96) 550-720 kozpont@dunatakarek.hu

sopRon bank bURgenland ZRt.

73,480

443

7,995

–

– „Communitas” Holding G.m.b.H. (100)

mag. andrea maller-Weiß – –

9400 Sopron, Kossuth L. utca 19. (99) 513-000 sopronbank@sopronbank.hu

polgÁRi bank ZRt.

38,626

130

2,463

–

Individuals (97.06), corporate (2.94) –

lászlóné béke – –

4090 Polgár, Hősök útja 8. (52) 573-035 titkarsag@polgaribank.hu

kiniZsi bank ZRt.

32,282

303

2,941

–

Individuals (100) –

antal lakatos – –

8200 Veszprém, Óváros tér 22. (88) 420-220 info@kinizsibank.hu

www.takarek.hu

www.sberbank.hu

www.granitbank.hu

www.commerzbank.hu

www.bnpparibas.hu

www.kdb.hu

www.bankofchina.com/hu/

www.magnetbank.hu

www.dunatakarek.hu

www.sopronbank.hu

www.polgaribank.hu

www.kinizsibank.hu

Ÿ= would not disclose, NR = not ranked, NA = not applicable

eqUity (HUF mln)

This list was compiled from responses to questionnaires received by March 11, 2020 and publicly available data. To the best of the Budapest Business Journal’s knowledge, the information is accurate as of press time. While every effort is made to ensure accuracy and thoroughness, omissions and typographical errors may occur. Additions or corrections to the list should be sent on letterhead to the research department, Budapest Business Journal, 1075 Budapest, Madách Imre út 13–14., or faxed to (1) 398-0345. The research department can be contacted at research@bbj.hu

notes: Data from the database of Hungarian Financial Supervisory Authority-National Bank of Hungary.

www.bbj.hu

Budapest Business Journal | March 13 – March 26, 2020

Socialite Saluting Carlos Santana’s Secret Hungarian Connection Carlos Santana was due to play the Budapest Arena on March 19. That has now been cancelled, but this remains the city that gave birth to the man who was perhaps Santana’s greatest inspiration. DAVID HOLZER

Santana’s career began in late 1960s San Francisco, where he pioneered a fusion of Afro-Latin-blues-rock that transcended genre boundaries. Which makes it even more intriguing that he should be so influenced by a jazz guitarist. The group Santana named after himself was one of the breakout stars of the Woodstock festival in 1969, the same year its debut album released. Featuring Top 10 hit “Evil Ways”, the album stayed on the Billboard chart for two years. Number one album Abraxas, which followed, is 50 years old this year. Since then, Santana has released almost

albums

and sold more than 100 million records. The band has won 10 Grammy awards and entered the Rock and Roll Hall of Fame in 1998. “Africa Speaks”, released in 2019, showed that Carlos Santana has lost none of his fire, soul and virtuosity. Produced by Rick Rubin, known for sympathetically reinvigorating the careers of mature rock and rollers including Johnny Cash and Tom Petty, the album featured Spanish singer Concha Buika, a fine performer in her own right. The “New York Times” said it “ranks with the fiercest albums in Santana’s 50-year career.” Well-known for his interest in spiritual matters, Santana is also devoted to social activism and humanitarian causes. The Milagro Foundation, established by him and his family in 1998, has granted more than USD 7 million to non-profit programs focused on the arts, education and health that support underserved children and youth. This combination of musical and spirituality suffuses Santana’s live performance.

It symbolized for Santana what was happening

in the

mid-1960s.

The Beatles were, as Santana put it, “starting to interject a deeper thought” into pop. By then, Szabó was already experimenting with playing intelligent pop songs like Jefferson Airplane’s “White Rabbit” so, Santana said, “it was all merging without becoming confusion, fusing, all coming together very naturally.” Santana saw Szabó as being on a par with Jimi Hendrix, high praise indeed, especially in his innovative use of feedback. The difference was that, where Hendrix deployed feedback in a wild, psychedelic fashion, Szabó used it like a drone, because he was more into Indian music. After Santana and Szabó became friends, the Hungarian guitarist would stay at his house. Hanging out together, Santana noticed that “Gábor was very focused on Gábor. He’d listen to other things but not as much as he’d listen to his own stuff. He’d take only a little bit from people, enough that he needed. But, with him, he could take something like ‘My Foolish Heart’ or ‘Autumn Leaves’ and immediately make it like it’s the first time you ever heard that song. It takes a very strong soul personality, not so much an ego personality, to be able to put your fingerprints on somebody else’s song. You have to go home, unplug the TV and telephone and plug in and disconnect Carlos Santana. Photo by Joshua N. Timmermans. yourself. Pull the song apart, put it back together again.” According to Santana, he wasn’t the Miracles Happen thought his acoustic guitar “would be a only rock and roll guitarist influenced He has said, “When you come to a pacifier in case we were caught. At night, by Szabó. “We all wanted to be B.B. King Santana concert, the miraculous happens. though, it looked like a machine gun; when we grew up. But as soon as we grew Miraculous means, transforming darkness I may have been inviting trouble now up, we went to Gábor. [.…] B.B. had me in into delight. I feel like a 20-year-old on that I think about it.” a spell. When I heard Gábor, I knew there stage playing with this band, and they Szabó made it to the United States. were other possibilities with the guitar. [.…] deliver high energy on every song. When In 1958, while studying at the Berklee Guitar became even more fun to play.” we hit the stage, we know we will touch School of Music in Boston, he took part your heart and make you dance, sing, cry, in the historic Newport Jazz Festival. laugh and leave your baggage behind. After Berklee, Szabó joined “It is with great disappointment Our vision-mission is designed to elevate, The Chico Hamilton Quintet. As that I have to inform our fans that transform and illumine consciousness to he told “Down Beat” in 1965, “It wasn’t we are canceling our upcoming make you want to embrace your own light until I joined Chico Hamilton in Europe Tour,” President of and allow for miracles and blessings to 1962 that I developed my own style Universal Tone Management, flow from your own heart.” and really loosened up.” Michael Vrionis said in a statement. I was hoping Santana would have “Many countries have made Paying Tribute achance in Budapest to acknowledge his the decision to restrict public Szabó and Santana first met in 1966. love of legendary Hungarian jazz guitarist gatherings in excess of 1,000 Santana has paid tribute to Szabó’s style Gábor Szabó. people to curb the potential ever since. Szabó was born in Budapest in 1936 and spread of coronavirus (COVIDIn 1970, Santana had an enormous died here in 1982. He was inspired to play 19). While we deeply regret hit when he combined a song called guitar by a Roy Rogers cowboy movie and this unfortunate circumstance, “Gypsy Queen” with “Black Magic pretty much taught himself. Today, he is a the safety of our fans is the Woman”, written by Peter Green, cult hero for jazz aficionados. main priority for the Santana All Szabó took with him when he crossed founder of Fleetwood Mac. “Gypsy Organization,” he added. “We Queen,” from the “Spellbinder” the border from Hungary into Austria in will keep you all informed of new November album was written by Szabó. It also performance dates as they are gave The Doors their entire intro made, and will make every effort to “The End”. to return to Europe soon.” was the thing that mattered most to Santana adored Szabó’s work, calling him. As he later told “Jazz” magazine, he it “fantastic, spellbinding music.”

1956

www.bbj.hu

Budapest Business Journal | March 13 – March 26, 2020

Badacsony, with its series of magical yet brooding sawnoff mesas (isolated, flat-topped elevations, ridges or hills) and shapely volcanic cones, plus its Balaton lakeside setting, is not only one of Hungary’s most beautiful spots, it is also prime terroir for making fine wine. ROBERT SMYTH

The dark basalt soils and the moderating influence of the water can, and increasingly do, yield wines with fine purity of fruit and subtle salinity. My first brush with Badacsony was two decades back, when vintners there would merely greet you by asking whether you wanted “száraz vagy édes” (“sweet or dry”). I recall the dry generally being clean and quaffable (if it a little watery) and appealing to my then primitive palate. Fast forward to 2020 and Badacsony is a hive of vinous activity and creativity with a growing group of winemakers skillfully crafting wines that channel the essence of their place of growth into the glass. Nevertheless, there’s still much chiseling to be done to smooth out some rough volcanic edges. This year’s Badacsony New Yorkban tasting (literally Badacsony in New York) saw many of the region’s finest winemakers hit Budapest’s legendary coffee house on February 28 and it was a buzzing affair. The region’s indigenous Kéknyelű grape could be Badacsony’s calling card but, in most cases, it comes up short and somewhat sour, with a very neutral, austere

Photos by Norbert Varga

Badacsony: a Bevy of Balaton and Basalt

character with just a touch of citrus and painfully sharp acidity. However, the solution appears to be simple, though few appear to be doing it (perhaps for cash-flow concerns); lay it down and let it age! Rather than getting old and tired, the wines transform to become rich, rounded and full of life. A case in point is the 2006 by Szeremley (HUF 4,075 from borkereskedes.hu), the modern region’s pioneer. This is a wine which is still very much with it and has probably only recently peaked, with its floral, baked fruit and nutty aromas and dense, long palate, with a good dose of structure-building acidity. It certainly has a strong sense of place about it.

Ramping Complexity

I actually made the conclusion that this wine was still approaching its peak in 2016 and needed another year or two for its acidity to fully round out. In this way, it is very like Hunter Valley Semillon from New South Wales, Australia, which is also citrusy and simple to begin with, but ramps up the complexity over a decade or two. There are some exceptions to the laydown rule, such as Válibor’s Kéknyelű from the 2018 vintage (HUF 4,130 from artizanshop.hu), which has lovely inviting and quite rare (for this grape) floral aromas, alongside the usual citrus, and a rich and deep palate with an oily texture. It was spontaneously fermented and aged for eight months in used 500 liter barrels. It comes from less volcanic soils from

Badacsonyörs, which may account for its approachability at this young age. Kéknyelű takes up just 44 hectares of Badacsony’s vineyards and this lateripening, fully female grape, which ironically makes wines that may be described as thoroughly masculine, needs to be pollinated by another grape variety, a deed long carried out by Budai Zöld. This latter grape usually makes light floral wines (Válibor’s is the pick of this variety for me), although Rózsakő, a crossing of Budai Zöld and Kéknyelű created by Ferenc Király in 1957, is also now performing the role and has good potential, with producers like Szászi making good offerings. This organic producer also makes very good Olaszrizling, in particular the Szigligeti Kabócás 2018 (HUF 5,950 from the cellar), which is one of the best in the country and smashes the assumption that Olaszrizling can only make simple wines. Laposa’s 4 hegy (hill) Olaszrizling is another strong example, although one of the four hills the grapes come from actually is Somló Hill, in another region, where the family has some grapes.

Real Depth

Socialite | 23

color thanks to 36 hours of skin contact (the grapes skins are somewhere between those of white and black grapes), and smooth, dense, peachy palate. Another cracker comes from Csaba Török’s 2HA cellar from Szent György-hegy: the 2018 (HUF 3,470 from artizanshop.hu). This is confident, ripe, round and rich take on Pinot Gris, which has vibrant acidity to cut through the wine’s intensity. 2HA also makes serious red wines, such as a Shiraz and Tabunello, the latter made from the Sangiovese Grosso of Tuscany – the same grape behind Brunello di Moltalcino. Also, from the prized Szent Györgyhegy, Canadian-Magyar Robert Gilvesy is bringing out his new Váradi Furmint 2018 soon and it is worthy of comparison to a high quality Furmint from Tokaj. Laposa also makes a decent Furmint, while Tamás Borbély made his first vintage in 2018 (called virgin vintage), which is a little rough around the edges. Hárslevelű, another high-end grape more readily associated with Tokaj, is hard to find in Badacsony but it can be excellent, such as those made by veteran Nyári Dűlő, and Csendes Dűlő, a relative newcomer.

Pinot Gris, which is often called Szürkebarát (literally grey monk) in Hungary, is in its element in Badacsony. In many regions of the world, this grape variety makes inexplicably popular wines of quite bland character, but it can capture real depth here. Meanwhile, Borbély’s Kőmagas Rajnai rizling (Riesling) 2016 is very varietal with that classic petrol note emerging and a waxy texture and saline minerality that brings the grape home to Badacsony, or rather an adopted home. While many may consider that Hungary is too warm to make good Riesling, Swedish-owned Villa Sandahl goes full tilt at this great German grape and makes little else, releasing wines from different fractions of the must. While the names of the wines may be catchy (Oh Deer, Rabbit Periscope and Chicken Year), the wines are classy and capture the essence of the grape, albeit in a warm lakeside context, where the vineyards on Badacsony Hill lap up reflected sunshine and heat from the lake which they overlook.

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