Issuu

VOL. 30. NUMBER 5

MARCH 11 – MARCH 24, 2022

HUF 1,850 | EUR 5 | USD 6 | GBP 4

HUNGARY’S PRACTICAL BUSINESS BI-WEEKLY SINCE 1992 | WWW.BBJ.HU

SPECIAL REPORT INSIDE THIS ISSUE

Banking

Bank Sector Grows in 2021, Still Lags Pre-pandemic Levels The most recent figures from the National Bank of Hungary show the net profit of the local banking sector rose by 113% to HUF 820 billion in 2021, but its not yet back to the pre-COVID levels. 16

Banking on Best Practices for Customer Service Giacomo Volpi, deputy CEO at UniCredit Bank Hungary discusses his focus on improving service and the customer experience, importing best practices, and developing the bank in the country. 19

Community Building

SOCIALITE

Placido Domingo to Reopen Opera House in Private Gala Described by the stunningly restored Opera House as a “friend and an invaluable ally,” Domingo will appear at the March 12 Reopening Gala to conduct three pieces rooted in Hungarian music. In April, he will return to sing a complete opera. 22

NEWS

War Overshadows Industrial Growth

BUSINESS

Architect-turned property developer Mihály Schrancz talks about his role overseeing the creation of a ‘15-minute city,’ the Buda Business District brand, and keeping the BudaPart mega development on a human scale. 8

Although the performance of the Hungarian industry exceeded the boldest expectations in January, the pace of the growth can hardly be maintained, as the unpredictable consequences of the war in Ukraine make the outlook uncertain. 3

CHINA COUNTRY FOCUS

Making the Most out of China’s Massive Market We quiz Csaba Wolf, vice-president of the Hungarian-Chinese Chamber of Economy to find his take on how Chinese-Hungarian commercial ties have been developing.  11

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Budapest Business Journal | March 11 – March 24, 2022

IMPRESSUM

THE EDITOR SAYS

WHEN WAR NEWS GOES VIRAL

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

Czifra, Kester Eddy, Bence Gaál, David Holzer, Christian Keszthelyi, Gary J. Morrell, Nicholas Pongratz, Gergely Sebestyén, Robert Smyth, Bálint Szőnyi, LISTS: BBJ Research (research@bbj.hu)

I was struck the other day by a phrase used by a seasoned foreign correspondent: she described the war as having gone viral. She meant the way in which photos, videos and updates are being shared on Twitter and TikTok, how Russians and Ukrainians alike are using Messenger and Telegram to keep in touch. Humankind has a long and inglorious record of not learning the lessons of history but instead resorting to war to settle grievances. And for each conflict, it seems, there has been a new technology to report back on it. It started with word-of-mouth and long-distance running (Marathon), then came needle and thread (the Bayeaux Tapestry after Hastings), the advent of specialist war correspondents (the Crimea), film (fighting was captured on moving pictures in the late 1890s in Greece and South Africa, but it was World War I that was the cinematic breakthrough), TV (Vietnam) and 24-hour news channels (the first Gulf War). But it isn’t just viral in the sense that news is shared so widely. The Russo-Ukraine war, so new I don’t think it yet has an official name (let’s all agree “special military operation” is as silly as it is inaccurate and ignore that), is simply everywhere. You are almost certainly following developments to our east through a multi-channel approach. If our website (budapestbusinessjournal.com) or daily newsletter Hungary A.M. is part of that smorgasbord of news provision, you will almost certainly have noticed that we prefix all relevant stories “Ukraine Criss.” We deliberately took that approach early on because we wanted to make it as easy as possible to navigate toward such stories (and, equally, to avoid them if you are “war-weary,” although, tragically, that is not a luxury afforded the people of Ukrainian). Editing Hungary A.M.

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the other day, it dawned on me that this war touches absolutely every aspect of our lives in one way or another. And now energy has entered the mix as well. Viewed from the sidelines, the unity of what we used to call the Euro-Atlantic alliance, members of NATO and the European Union, has been impressively rock-solid. It was just one of the miscalculations Vladimir Putin made when he launched his invasion. But I wonder (and worry) whether this might become a point of tension between the United States and the United Kingdom, both of whom have announced they will end Russian energy imports, and others in the EU, not least Hungary. You can understand the logic of the U.K.-U.S. approach. On the one hand, we introduce a raft of sanctions to strip money away from those in Russia who are in power and their supporters, while on the other, we continue to buy Russian gas and oil. The problem for the EU, and especially the likes of Germany and Hungary, is that they are all but dependent on Russia to heat homes and power factories. “Extending the sanctions further to the energy sector, to the oil and gas sector, would mean a disproportionately large burden for Hungary,” Prime Minister Viktor Orbán said after a meeting with his Visegrád Four and United Kingdom peers in London on Tuesday (March 8). “That’s why I made it clear that while we condemn Russia’s military attack and condemn the war, too, we will not allow Hungarian families to pay the price of the war.” I hope I am wrong, but I fear Euro-Atlantic relations are heading for choppy water. Robin Marshall Editor-in-chief

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THEN & NOW

Ukrainian refugees at Beregsurány (a town 308 km northeast of Budapest by road, near the border with Ukraine) in the gym hall of an elementary school, having fled the Russian invasion. The black and white image from the Fortepan public archive shows poverty-stricken children in 1907 in Subcarpathia, a part of Ukraine predominantly inhabited by ethnic Hungarians, who call it Kárpátalja. It was part of Greater Hungary until the borders were redrawn after the defeat of Austro-Hungary at the end of World War I.

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Budapest Business Journal | March 11 – March 24, 2022

News macroscope •

Industry Outperforms Expectations, but war Overshadows Outlook

Although the performance of the Hungarian industry exceeded the boldest expectations in January, the pace of the growth can hardly be maintained, as the so-far unpredictable consequences of the war in Ukraine make the outlook uncertain. ZSÓFIA CZIFRA

According to the first release of the Central Statistical Office (KSH), the volume of Hungary’s industrial output in January this year was 8.9% higher than in January 2021. Based on working-day adjusted data, production rose by 7.1%. Looking at seasonally and working-day adjusted data, industrial output was 1.9% higher than in December 2021. According to KSH, most of the manufacturing subsections contributed to the growth. After a six-month decline, the manufacture of transport equipment (with the most significant weight overall) increased again, although the manufacture of computer, electronic and optical products practically stagnated. The manufacture of food products, beverages and tobacco rose above the industrial average. Péter Virovácz, a senior analyst at ING Bank, said that the Hungarian industry saw an extremely strong start to the year, with growth in January exceeding expectations. The automotive industry played a huge role in the excellent performance. In the first one and a half months of the year, the news was about the shortage of parts slowly but surely easing; the war ended this positive development in a minute, he said.

Forint / Euro Exchange Rate Jan. 3-March 7, 2022 Official euro exchange rate of the Hungarian National Bank; exchange rate for 1 unit, in HUF

Source:

With the closure of production plants in Ukraine, an increasing number of automotive factories in Europe are running out of parts. Meanwhile, a significant portion of European procurement also comes from Russia, creating aluminum, nickel, and palladium shortages. This will further slow industrial production capacities across Europe, Virovácz added. The good performance in January has thus become unsustainable, he warns. The analyst said the central question for the coming months is whether there will be a similar level of industrial shutdown as at the low point of the coronavirus crisis. He noted that the post-COVID recovery potential had always been relatively high as plants could return to production with enough parts, labor and capital.

Unpredictable Performance However, a significant part of the labor force has left Ukraine because of the war, and the fighting will destroy the capital, so it may take even longer to replace parts. Industrial performance this year is, therefore, unpredictable, but we are clearly facing another challenging year, the analyst concluded. Gábor Regős, head of the macroeconomic business of Századvég Gazdaságkutató Zrt., also noted that the growth of industrial production had exceeded otherwise low expectations. The positive performance was helped by a weak base and the fact that supply disruptions and microchip shortages had eased a little. There were also indications that winter shutdowns were shorter than last year. Based on the January data, the industry could make a positive contribution to

economic development in the first quarter, and its contribution to growth may be favorable throughout the year, he added. At the same time, risks include the Russian-Ukrainian war resulting in fluctuations in demand, supply difficulties, or a return to supply chain disruptions. Large international companies have been trying to shorten their supply chains in the wake of the pandemic, but that is not only making production more expensive; it is also threatening manufacturing itself, Regős concludes. Orsolya Nyeste, a senior analyst at Erste Bank, was surprised that industrial output increased compared to the previous month, as analysts had predicted stagnation. However, the outlook is now uncertain, she said. Data from January suggests that supply tensions may have eased somewhat, which has presumably helped vehicle production the most. However, the outbreak of the Russo-Ukrainian war means supply problems may reappear.

Since the war began, the forint has lost nearly 9% against the euro and reached a historic low on Monday (March 7), when one euro was traded for almost 400 forints. The significant weakening of the forint would probably force the central bank to take an extraordinary step, analysts said. On Tuesday (March 8), the central bank held what was scheduled as a non-ratesetting meeting. The Monetary Council did not discuss changing the base rate, but a decision was taken to widen the interest rate corridor: the overnight and one-week collateralized lending rates were raised by 100 basis points to 6.4%.

“The zloty, the forint and the (Czech) koruna are all likely to remain weak despite attempts by their respective central banks to contain losses, either through tighter monetary policy at home or openmarket intervention.” By widening the interest rate corridor, the council has increased its room for maneuver in monetary policy, which is crucial in the current situation, the MNB wrote in a note following the meeting. The central bank added that, if necessary, it stands ready to continue to respond quickly and flexibly to commodity and financial market risks arising from the rapidly changing environment by changing the one-week deposit rate. However, some say that is not enough. “The zloty, the forint and the (Czech) koruna are all likely to remain weak despite attempts by their respective central banks to contain losses, either through tighter monetary policy at home or open-market intervention,” UniCredit economists said in a note, cited by news outlet Bloomberg.

Downside Risks

The demand side has also become an essential issue in the wake of the war, as both business and consumer confidence are deteriorating, and demand may weaken in an emergency. So, despite the momentum that seems strong now, the outlook has become clouded; the longer the war continues, the more likely that downside risks will appear, she said. Interest rates are also in the spotlight across the region. As the Hungarian forint and the Polish zloty tumbled to record lows in the wake of the Russian invasion, the question is now how far central banks will go to raise interest rates.

Numbers to Watch in the Coming Weeks The Central Statistical Office will publish the January data of the Hungarian construction sector on March 16, followed by commercial accommodation establishment statistics the next day. On March 22, the Monetary Council of the MNB will hold its regular rate-setting meeting.

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Budapest Business Journal | March 11 – March 24, 2022

Most COVID Restrictions Lifted Coronavirus ///roundup for all but Healthcare Workers Experts believe the fifth wave of the pandemic “is approaching an end,” Gergely Gulyás, head of the Prime Minister’s Office, said at a weekly press briefing on March 3 announcing a sweeping rollback of protective restrictions.

NICHOLAS PONGRATZ

Gulyás said that the government would end the mandate requiring the wearing of facemasks in enclosed spaces such as concert venues, public transport, and shops on March 7 while also phasing out regulations on immunity certificates. Additionally, employers will no longer be empowered to require that their workers receive vaccinations. However, exceptions will continue to be made for the healthcare sector, with masks still required in hospitals and nursing homes, and social and healthcare workers are still expected to get inoculated. One welcome change is that the Ministry of Human Capacities has announced that visiting restrictions at these institutions have been eased. Despite the improving situation, the government decided to extend the weekend inoculation drive through March, State Secretary István György said, according to koronavirus.gov.hu. As has been the case since late last year, people may get COVID jabs at hospitals and

economic effects of the pandemic, but here is another blow, the war,” Szijjártó said at the opening of the Hungarian Chamber of Commerce and Industry (MKIK) on March 1, according to business daily Világgazdaság.

The German-American Pfizer-BioNTech coronavirus vaccine, the Comirnaty vaccine, being prepared for vaccination at a facility set up at the Borsod-Abaúj-Zemplén County Central Hospital and University Teaching Hospital in Miskolc on March 9, 2022. Photo by János Vajda / MTI regional vaccination centers without an appointment on Thursdays and Fridays, between 2-6 p.m., and on Saturdays between 10 a.m. and 6 p.m., György said. Meanwhile, Hungary’s Competition Office (GVH) has launched a probe into the local market for COVID antigen rapid diagnostic tests on suspicion of market distortion, according to novekedes.hu [Growth]. GVH said that market feedback had suggested that advertising for such tests “may exaggerate performance as defined by the manufacturer.” Hungary’s government recently started allowing retailers that aren’t licensed pharmacies to sell COVID rapid tests based on a GVH recommendation to boost competition in the market.

Vaccine Diplomacy

Scheduled vaccine orders continue to be delivered regularly, with another two shipments of 36,000 Pfizer-BioNTech coronavirus jabs for children aged five to 11 arriving on March 1 and 8. Hungary also continues to make vaccine donations abroad, giving 100,000 doses of the Moderna vaccine to Thailand,

according to Minister of Foreign Affairs and Trade Péter Szijjártó. That gift brought the total number of COVID jabs Hungary has donated to Thailand to date to half a million, Szijjártó said. So far, Hungary has helped support the inoculation campaigns of

Hungary continues to make vaccine donations abroad, giving 100,000 doses of the Moderna vaccine to Thailand, according to Minister of Foreign Affairs and Trade Péter Szijjártó. That gift brought the total number of COVID jabs Hungary has donated to Thailand to date to half a million, Szijjártó said. So far, Hungary has helped support the inoculation campaigns of 17 countries with the delivery of 4.2 million COVID jabs, he added.

countries

with the delivery of 4.2 million COVID jabs, he added. Following the invasion of Ukraine by Russia, Szijjártó commented that we are seeing the disintegration of the world economic status quo for the second time in two years. “We managed to avert the

“We will make every effort to bring peace to the neighborhood, but the time will come when we can talk about Hungary being one of the strongest in the current global economic environment,” he said.

At the timing of going to press, 2,632 new infections had been reported for March 8, bringing the total number of infected in Hungary to 1,809,917. Some 54 people died from the disease on that day, bringing the total number of COVID deaths in Hungary to 44,549. Numbers for both new infections and deaths are down, with weekly cases falling from 32,750 to 20,872 and weekly deaths from 686 to 534. At this point, 1,641,256 have recovered from the disease.

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Budapest Business Journal | March 11 – March 24, 2022

News | 5

Industrial Development in Hungary Booming The boom in the industrial sector continues, with demand remaining high and vacancies at a record low. In one recent logistics transaction, developer and investor Wing has purchased the Airport City Logistics Park, located in the neighborhood of Budapest Liszt Ferenc International Airport, from CPI.

Prologis Park Budapest-Sziget II In another significant industrial deal, the leading Hungarian and regional industrial park developer and operator Prologis acquired an additional

hectare

site for Prologis Park Budapest-Sziget II, with the total potential to develop 12,000 sqm of space in four logistics buildings.

GARY J. MORRELL

The business park contains almost 44,000 sqm of warehouse buildings and 8,0000 sqm of offices in six already functioning buildings, with a seventh under construction. “In line with its premium quality, the transaction was carried out at a 5.6% yield, which is the lowest ever rate in the Hungarian industrial and logistics property market,” Wing say of the deal. Total modern industrial stock in the Budapest area stands at about 2.7 million sqm, according to the Budapest Research Forum, consisting of CBRE, Colliers International, Cushman & Wakefield, Eston International, JLL and Robertson Hungary. This is a relatively small stock by Central European standards. The Czech Republic, for example, has approaching 10 million sqm of industrial space.

In general, projects have a delivery time of 10-12 months from permitting to completion, according to Zsuzsanna Hunyadi, director of leasing and customer experience at Prologis Hungary. With the new development, Prologis has a pipeline of 50,000 sqm of space in Hungary for the year. The country is seen as lacking a robust secondary industrial market in the regions, and therefore Prologis continues to concentrateg its development strategy in the M0 area around Budapest.

“All our developments reflect tenant concerns with renewable energy and energy costs with the provision of 25% renewable energy due to The Long Game the provision of solar panels As a specialist industrial park operator, Prologis holds onto its developments and and electric heat pumps.” acquisitions on a long-term basis. This The second phase of the first building, currently under construction, will see 14,000 sqm of speculative space delivered 17 km from the center of Budapest. The first 14,000 sqm was let to a Hungarian-owned freight-forwarding and warehousing company.

is also a trend among its peers, meaning there is a shortage of industrial assets available in Hungary and across the Central European region. Industrial developers and park operators are developing highly specified, sustainability-accredited projects in response to changing tenant demands and stricter sustainability regulations.

Further, the leading national and regional industrial park developers and operators are seeking third-party sustainability accreditation such as BREEAM and LEED. Prologis, for example, is developing in accordance with at least BREEAM “Very Good” certification for its entire portfolio. “All our developments reflect tenant concerns with renewable energy and energy costs with the provision

25%

renewable energy due to the provision of solar panels and electric heat pumps,” says Hunyadi. In the CEE region, Prologis is developing around 80% of space on a builtto-suit basis, with the remaining 20% constructed being speculative. Over the past year, such space has let very quickly, given the minimal supply of industrial space on the market. The company has a 630,000 sqm portfolio in Hungary. “After the financial crisis, there was a flood of space on the market and it took demand 10 years to catch up. After 2019, there was low supply of industrial space; however, there is now more development in reaction to the very strong demand for space,” she adds.

Top Real Estate Executives in Hungary 2021 The Top Real Estate Executives magazine is a special annual publication of the Budapest Business Journal. The magazine presents the profiles of the most influential real estate executives in the Hungarian economy. It puts a human face on the local development market, focusing on leading personalities’ profiles and outstanding achievements. Please forward your subscription request to: circulation@bbj.hu, or order your copy in the webshop at www.budapestbusinessjournal.com

• Provides an essential overview of how Hungary’s real estate system operates. • Get an insight into the most significant developments in 2020, and a look at what is in store for 2021. • Get to know the personalities behind the real estate business. • Read personal accounts from the country’s top real estate executives detailing how they got into the business and some of their proudest achievements, among other things.

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Budapest Business Journal | March 11 – March 24, 2022

Automotives Prepare for Greener Future, Face Serious Supply Issues

Automotive Matters

A monthly look at automotive issues in Hungary and the region

Suzuki car is several months. Depending on the specific vehicle level equipment, that can be shorter or longer. “Deliveries of Magyar Suzuki Corporation to Russia and Ukraine were suspended from March,” Bonnár-Csonka says.

The Hungarian automotive sector is undergoing a significant transformation, with more environmentally friendly and sustainable vehicle manufacturing on the rise. However, global supply chain issues are hitting the industry hard. Just as it was switching into a more optimistic post-pandemic mode, the war in Ukraine erupted.

CHRISTIAN KESZTHELYI

In line with the European Union’s commitment to global climate action under the Paris Agreement, the bloc is targeting becoming climateneutral by 2050. In less than three decades, national economies are supposed to operate with net-zero greenhouse gas emissions, meaning automotive companies in Hungary, as elsewhere in the EU, have started improving operations. “The Suzuki Group and Magyar Suzuki are committed to a greener future and see great potential in automation. It is important for our company to use the latest and best technologies to robotize as much as possible to ensure high brand quality,” Zsuzsanna Bonnár-Csonka, head of corporate communication and CSR at Magyar Suzuki, tells the Budapest Business Journal. Since 2016, the Hungarian operation has been undertaking a multi-stage innovation process, in which the firm is implementing significant development of robotics production technology. “By 2050, our group wants to operate with carbon-neutral plants and product portfolio all over the world, and this is also true for Magyar Suzuki Corporation,” Bonnár-Csonka says. In accordance with EU regulations on emissions, Magyar Suzuki, therefore, started series production of hybrid versions of the Vitara and SX4 S-Cross models at the Hungarian Esztergom plant in 2019. A year later,

65% of

the Hungarian production was already hybrid. “The hybrid range manufactured in Esztergom will expand further this year: the (strong) hybrid version of the Vitara arrived at the beginning of the year and the new (strong) hybrid version of S-Cross will arrive in the middle of this year,” Bonnár-Csonka adds.

Hydrogen Bus

Mobility is seeing an increasing share of greener transportation options country-wide. Early in February, the Hungarian Motorsport and Green

Mobility Development Agency (HUMDA) provided state-owned longhaul public transport services provider Volánbusz with an emission-free, hydrogen-powered bus. The Solaris Urbino 12 is the first hydrogen-powered vehicle in Hungary’s public transport fleet. The launch was part of a pilot program planned to end on March 6. The hydrogen vehicle has a passenger capacity of 89, connecting Budapest to Vecsés, in the agglomeration of the capital near the national Ferenc Liszt international airport. The distance is approximately 20 kilometers in air travel. Linde Gáz Magyarország Zrt. supplies the green hydrogen that fuels the bus.

“So far, 2022, similarly to the second half of 2021, holds many challenges for us, including supply chain difficulties.” “Decreasing carbon-dioxide emissions is crucial for the future of our environment. As transport constitutes one-fifth of Hungary’s carbon-dioxide emissions, we launched the Green Bus Program to decrease harmful emissions in public transport to contribute to meeting

the

2050

climate targets,” said State Secretary for Energy and Climate Policy Attila

Supplies Impacted

Zsuzsanna Bonnár-Csonka Steiner, at the presentation of the bus in early February. While the automotive sector focuses on reducing emissions, further challenges face the industry. “So far, 2022, similarly to the second half of 2021, holds many challenges for us, including supply chain difficulties,” Bonnár-Csonka tells the BBJ. Recent global supply chain issues have made sourcing spare parts and automotive-related technology difficult. The Russian invasion and war in Ukraine have only exacerbated that situation. The entire automotive industry has been shaken by the lack of semiconductors, a piece of technology that enables most innovations in vehicle development and is considered the catalyst for the growth driving consumer demand. “Responding to the semiconductor shortage, which our company is still expecting this year, together with our electronic component suppliers, we are working on ensuring a continuous supply of our products,” BonnárCsonka says. Magyar Suzuki resumed two-shift operations at its factory in Esztergom from Feb. 28 to ensure swift deliveries. The average waiting time for a new

Hybrid 101: Alphabet Soup for Motorists In addition to traditional vehicles powered solely by the internal combustion engine (ICE, gradually to be outlawed) and electric vehicles (EVs), which operate using only electricity, there are three types of hybrid autos. A full hybrid electric vehicle (FHEV) has both an internal

combustion and an electric engine. It can run exclusively on either motor or a combination of both. An FHEV is not plugged into an electric car charger; the battery that powers the electric engine is charged by running the combustion engine. A mild hybrid (MHEV), like an FHEV, has both an internal

It is not only Suzuki’s Hungarian operation that has experienced supply chain issues, though. Audi Hungaria Zrt. told the Budapest Business Journal that the war in Ukraine will have an impact on supplies. Nevertheless, Audi insisted that customers are currently unaffected. “Audi Hungaria has several suppliers from Ukraine and, as a consequence, we expect the conflict to have an impact on our supply chains and therefore also on production,” the German giant said in response to direct questions put to it by budapestbusinessjournal.com, this paper’s online news service. The Győr-based manufacturer told the BBJ that it is “constantly analyzing the situation and is in close contact with the Volkswagen Group and our suppliers.” As of the week beginning Feb. 28, the continuity of Audi Hungaria’s supply to its customers “is ensured,” the BBJ learned. The short-term outlook for the automotive sector, however, is far from promising, despite a good start to the year. In January, the rebound of automotive manufacturers gave Hungarian industrial output a long-awaited growth injection. According to Central Statistical Office data, the sector rose

8.9%

year-on-year, the fastest rate since summer 2021. ING Bank chief analyst Péter Virovácz told Hungarian state-owned news agency MTI that the automotive sector must have played an “extraordinarily big role” in the industrial output growth, beating expectations. However, he added that shutdowns in Ukraine are causing trouble for Europe’s carmakers. Additionally, as Europe is reliant on Russia for sourcing raw materials such as aluminum, nickel and palladium, the national industrial sector is facing a difficult year ahead as its main engine, automotive, could be crippled by the armed conflict beyond Hungary’s Eastern borders.

combustion and an electric engine, but in this case, both engines always work together. A plug-in hybrid (PHEV) is connected to an electric vehicle charger to charge the battery that powers the electric engine. Therefore, as long as the battery lasts, it can run as an electric auto while having an internal combustion engine as a backup.

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Budapest Business Journal | March 11 – March 24, 2022

Business

Good Relations

Ryanair Expands Operations in Budapest, Predicts Growth in Region

Ryanair, the Irishbased budget airline, is to expand its Budapest operations with the allocation of two Boeing 737 8-200 aircraft, enabling the carrier to boost its total daily flights serving the Hungarian capital in the summer timetable from 50 to 70, Jason McGuinness, Ryanair’s chief commercial officer, told a press conference on Feb. 24. KESTER EDDY

The new schedules mean Ryanair will operate 62 routes from Budapest after March 27, adding eight new destinations to the roster, including Swedish capital Stockholm, two Baltic states and the major northwest German city of Cologne. (See box) “This is over 50% more routes versus 2019, [... this is] incredible growth during the pandemic. We think [the additional flights] will increase

Ryanair’s 8 new Summer Flights Destination

Frequency

Stockholm, Sweden

Bournemouth, U.K.

Cologne, Germany

Krakow, Poland

Kaunas, Lithuania

Riga, Latvia

Shannon, Ireland

Turin, Italy

2 *Return flights per week serving Budapest

McGuinness declined to reveal the length of the contract with Budapest Airport, merely saying that “we have very good relations” with the operator. Pressed in private by the Budapest Business Journal for some hint as to where developments might come, with a special mention of Debrecen in particular, he expressed confidence in growth for Hungary and the region, particularly Poland, but kept quiet on any future details. Nonetheless, Ryanair is clearly very alert to the potential, citing rapid success at Zagreb recently. “I’ve been very, very happy with the way Zagreb has started,” he said, adding Ryanair was flying “well over 30 routes” from the Croatian capital after just

months

Jason McGuinness Boeings from 135 to 210 aircraft. As a passengers from somewhere in the result, the carrier is well placed to benefit region of three million to 4-4.5 million, so extraordinary growth in Budapest,” an from an expected fast recovery in the sector this year, assuming the COVID ebullient McGuinness predicted. pandemic recedes. He stressed the new 737 8-200s have Despite this, Ryanair expects total 4% more capacity (197 seats versus 189) than Ryanair’s earlier version of the mark demand across Europe this year to be some 10% down on 2019 numbers. and also burn 16% less fuel, with 40% However, given that the carrier is less noise emissions, though it was not clearly specified to what the latter figures planning to expand its fleet to 620 aircraft flying 225 million passengers by were compared. 2025, he said “progressive” airports are The additional aircraft will result in Ryanair employing a total of 240 “highly “queuing up” to lure the Irish carrier into using their facilities. paid” aviation positions in Budapest and “I’ve been in the commercial department of Ryanair for well over

4,000 jobs

indirectly, McGuinness asserted, assuming the industry norm that one million passengers create an additional 1,000 jobs as a knock-on effect. The move also represents an additional USD 200 million investment, bringing the total of Ryanair’s investment in Hungary to USD 800 mln, he said. Quizzed later on this, McGuinness admitted this was purely the value of the aircraft, with no fixed capital investment involved. “I don’t think there is any fixed investment [these days]. A company can build a factory and pull it down; nothing is forever,” he replied in defense of the claim, adding, “This is a huge economic enabler in terms of economic development for Budapest.”

Strategic Policy

As a matter of strategic policy, Ryanair had maintained all its staff throughout the COVID pandemic. While other carriers were parking planes in the desert, McGuinness emphasized that it had even increased its orders for new

15 years,

and I’ve never seen so many airports eager to engage [with us],” he said. While the expansion would include developments in Hungary and across the region, the otherwise verbose McGuinness was strictly tight-lipped as to where and when despite several promptings. The critical metric for all flight planning is costs, he stressed, and “progressive airports” such as London Stansted, Charleroi, and several Italian locations, all of which have signed long-term agreements with Ryanair, would reap the benefits. In contrast, others, such as Frankfurt Main, where the carrier had 10 aircraft based in 2018, are being dropped. “I’ll be very blunt; we failed to reach an agreement with Frankfurt Main. They were looking to increase their charges and passenger targets,” he said. “Frankly, in the current market, Ryanair simply has too many opportunities to be paying higher charges.”

of operations. Asked about the effects of Brexit on traffic to London and the United Kingdom in general, an important market from Central Europe, McGuinness said it was difficult to assess because of the near-simultaneous impact of the coronavirus pandemic. “You’re quite right, that is a large market in terms of migration, in terms of those flows, [but] the consequences of Brexit have yet to play out because when Brexit finally got finalized, we had COVID. I think we’ll need a full 12 months of non-COVID to see exactly how traffic flows play out in terms of whether it has fundamentally restructured that market,” he explained.

Ryanair Suspends all Flights to Ukraine Ryanair announced the new flights serving Budapest on Feb. 24, the very morning that news broke of the Russian invasion of Ukraine. The airline, which flew to Kyiv, Lviv and Odesa, immediately suspended all flights serving Ukraine for a minimum period of 14 days. Jason McGuinness said the situation was “very fluid” and would not comment further on the statement regarding Ukraine flights. Asked by the BBJ what impact the conflict was likely to have on passenger demand to Hungary and other countries neighboring Ukraine, McGuinness balked, then sought to answer another question. “When you look across the summer in terms of looking at demand, I can’t tell you how people are going to think. Clearly, this is not ideal, we do not want this on our doorstep in Europe, but I’m not going to start commenting on geopolitical events. I think it’s now for the EU, etcetera, to deal with this […] not Ryanair.” Before going to press, the Ryanair website stated that the suspension of flights to Ukraine had been extended to the end of March.

8|2

Business

PRESENTED CONTENT

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Budapest Business Journal | March 11 – March 24, 2022

A Holistic Approach to Building Livable Communities the real power and makes the critical decisions, including hiring the director. “Any investor, whether in the film or real estate industry, expects profitability in the long term. To fulfill this expectation, deep market knowledge is only the foundation. For sustainable profitability, I also have to think with the end user’s head,” Schrancz says.

Architect-turned property developer Mihály Schrancz has an opportunity granted to very few: he gets to build complete communities. It must feel very rewarding, I tell him. “Look at my face,” he says, through a beaming smile.

Development Philosophy

He says his main focus is brand building and business planning and, as part of that, creating the philosophy and business vision of each project.

“If people do not need to move so far, they don’t need to use their car so much. We can reduce traffic congestion and air pollution. The question is, how do we make the change from a traffic city to a people city?”

ROBIN MARSHALL

The BudaPart development is significant on any scale. There will be a total of 27 buildings, 15 residential, with 3,000 units all told, and 12 offices with space for 23,000 staff. Five residential condominium buildings have been handed over, and two offices, BudaPart Gate and BudaPart City. Residential building “F” and BudaPart Downtown are under construction now and will include a hotel and retail units. The handover of the final building of the completed neighborhood is currently due for 2031. “BudaPart is perhaps the largest, but certainly one of the most complex, projects in the modern history of Budapest, in terms of project budget, the number of inhabitants, and the number and complexity of development,” says Schrancz. “Creating a business vision and coordinating the implementation of a real estate development project of this scale would be top league anywhere in the world.” The development is emblematic of the evolution of city design over the past few decades. There has been a very definite move away from single-use or out-oftown projects. Schrancz says he takes a holistic approach to business, architecture, and city planning. He believes all three elements must work together to create livable cities on a human scale. Central to this is the idea of neighborhoods. The “Downtown” development is the most obvious example at BudaPart, but not the only one. Groups of four or five buildings are clustered around what effectively become communal squares. Careful positioning and different heights create corridors offering lines of site for views and letting in more light, which in the end results in an increase in sales value. Bordered by Dombóvári út and Budafoki út on two sides and Lágymányos Bay and the banks of the Danube on a third, the concept is to develop a Buda Business District here

Mihály Schrancz in District XI, a place where people can live, work, shop and eat in the same area, reducing the need to travel. “From the very beginning, we imagined BudaPart not only as a unique living area but as one of the most important business districts of the city. At the moment, the Váci Corridor is the only spot in Budapest on the international real estate investors’ map, but BudaPart can be a new alternative since we have the same scale of offices. That’s why I came up with the idea of the Buda Business District brand,” Schrancz explains. “If people do not need to move so far, they don’t need to use their car so much. We can reduce traffic congestion and air pollution. The question is, how do we make the change from a traffic city to a people city?” Schrancz believes this is the answer.

15-Minute City

The developer cites the concept of the “15-minute city” put forward by the French-Columbian architect Carlos Moreno, and since championed by Paris Mayor Anne Hildago. It envisages a living and working environment with everything close at hand. It really began to gain traction

around 2020-21, but Wikipedia says Moreno first proposed the idea in 2016. “I am very proud to say we were already developing BudaPart here in 2016,” Schrancz says. The idea of lots of communal squares almost inevitably conjures up the idea of Italian towns; indeed, Schrancz uses the word piazza and says he wants to fill them with public sculptures or design elements. That “Mediterranean” feel is not by accident, however. It has its roots in his hometown of Pécs, where he also studied architecture. “We used to say there are more artists and architects per square meter in Pécs than anywhere else,” he jokes. “As I formed the development vision of BudaPart, I projected a neighborhood where pedestrians and not vehicles play the main role. In Pécs, people love to promenade. The city has many urban public areas and parks suitable for the evolvement of a community.” Schrancz says real estate development as a profession still needs to be clarified. He likens it to the difference between making a film in Central Europe and the United States. In the former, the director is the most influential player; in Hollywood, the producer has

“I do the conceptual and development plan and then I give it over to my colleagues,” he explains. “I think my real added value is in doing the strategy and the vision, so I focus on this part. For most of my days, I deal with company building, HR issues, contracts. But we are a great team; everyone is motivated to create something lasting. The supportive background and trust of the investors, their exceptional business talent and ambition are key to realizing the developments.” Schrancz was asked to lead Property Market (he was the first one hired) to develop BudaPart. The firm is now the country’s third-largest real estate development company with an active development portfolio of HUF 500 billion. It currently has 23 active projects. Schrancz has twice been voted among the 50 most influential real estate professionals in Hungary. The 54-hectare plot had been owned by three Portuguese companies, who had acquired it from a Hungarian private investor in 2008, just weeks before the financial crisis hit. They had a master plan and zoning permission in place but had never been able to take the project forward. Owned by Market Építő, one of the most successful construction firms in Hungary, led by the well-known businessman Sándor Scheer, Property Market was founded in early 2015 and closed the acquisition of the land in December of that year. Then began the process of drawing up an entirely new master plan and getting the various zoning permissions. Not even COVID has derailed the plans since then, Schrancz says. “The leasing of the offices slowed down, of course. Interestingly, there were only two months back in 2020 when we could not sell as many apartments as before. Now we are really back at top speed.”

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Budapest Business Journal | March 11 – March 24, 2022

How Might Invasion of Ukraine Impact Western Economies? While the world is experiencing a humanitarian crisis and approaching Armageddon, some observers have focused on how much damage sanctions have caused to Russia. They will have devastating effects there, but for this article, Les Nemethy focuses on how they are also shaking the very foundations of our own economic houses. LES NEMETHY

The Corporate Finance Column

Globally Systematically Important Banks Under Pressure Eurozone G-SIBs

Feb. 25

March 4

Loss

Group Credit Agricole

12.06

10.40

14%

Soc Gen

28.45

21.60

24%

Deutsche Bank

11.89

9.43

21%

ING Groep NV

11.41

9.3

19%

Santander

3.12

2.79

10%

Unicredit

12.63

9.7

24% Source: Goldmoney

sanction Russian energy without itself risking systemic collapse. Russia is simply too important in the oil and gas market and supplies roughly half of the EU’s gas. European gas prices have more than quadrupled over the last year alone, and the trend is still practically vertical. Europeans currently pay 13 times more for gas than Americans.

Gas Taps

Gas is still flowing through Ukraine, although a Ukrainian pipeline was recently accidentally hit. Further north, gas has stopped flowing through the Yamal pipeline, accounting for approximately 15% of Russian gas to Europe. Russian gas flow to Europe could well be more seriously interrupted or stopped by sanctions. A more than 50% increase in energy prices has resulted in a recession every single time since 1970. At the date of writing, the Brent oil price was

The Russian and Ukrainian economies together account for only 2% of global GDP; one may be tempted to dismiss the significance of events going on just to our east. Already before the Russian invasion of Ukraine and sanctions, the world was facing: • a record amount of debt over (USD 360 trillion and growing); • stratospheric valuations on equity markets; and which leads to a prediction of recession • the highest levels of inflation since over the coming months. the early 1980s. Energy is perhaps the most significant Cumulatively, these have taken us contributor to inflation, but the war disrupts to the edge of a vast economic abyss, supply chains and acts as a catalyst to global concerning which sanctions represent inflation at so many other levels as well: another huge step forward. The primary mechanism by which the • Russia and Ukraine account for 25% of global grain exports. Wheat West is likely to be affected is via energy prices have catapulted by about prices. Analyst Luke Groman recently 50% over the past month. stated that the United States could not

USD 130,

Business | 9

• Russia provides some 42% of global palladium, which is necessary for catalytic converters. Prices have skyrocketed. • Several weeks ago, Russia cut off its fertilizer exports, contributing to a worldwide spike in fertilizer prices. The Fertilizer Price Index has almost doubled in the past year, leading to across-the-board increases in agricultural commodity prices. High inflation leads to the impoverishment of anyone on a fixed income and the rise of populist parties. I’ll give you just two historical examples: increases in wheat prices triggered the Arab spring, and hyperinflation helped sweep Hitler to power. We may unwittingly further increase damage upon ourselves by restricting trade. Hungary, for example, has decided to stop grain exports. Such bans may provide some price relief at home but ultimately lead to retaliatory actions and supply chain disruptions.

Banking Breakdown

Another area where the Ukrainian invasion may impact the West is through banks. The share prices of a handful of Globally Systematically Important Banks have fallen by double-digit percentages just in the past week. The European banking system is under unprecedented stress. Société Générale owns one of the largest private banks

in Russia. OTP Bank of Hungary has also seen its share price plummet due to Russian and Ukrainian exposure. Sberbank’s Central European subsidiaries are facing default and liquidation. Several major European banks had 30x asset to equity ratios even prior to the Ukrainian crisis, meaning that a

3-4% decrease

in asset values has the potential to eliminate equity value. There are also thousands of investment funds, fund managers and corporations in North America and Europe that will need to write off or markdown assets. Because Russian financial markets are closed, this process has been slow to begin but will inevitably accelerate over the coming months. Although the dollar is currently experiencing relative strength to the euro (as Europe bears the brunt of energy supply vulnerability, bank fears, etc.), the dollar may also be a casualty in the long term. The Chinese no doubt took note of how easily Russian dollar-denominated central bank reserves were seized. China and other countries may be expected to reduce dollar reserves and U.S. dollar-denominated trading further, in turn lowering demand for U.S. bonds and U.S. dollars. In conclusion, the economic impact of sanctions is only beginning to be felt. As their effects play out, we will likely experience rising debt levels, spiraling inflation, bank failures and recession. A combination of high inflation and low or negative growth may lead to a lethal brew of stagflation. Not a rosy picture.

Les Nemethy is CEO of Euro-Phoenix Financial Advisers Ltd. (www.europhoenix.com), a Central European corporate finance firm. He is a former World Banker, author of Business Exit Planning (www.businessexitplanningbook. com), and a previous 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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Business

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1st AmCham Sustainability Summit Debates the Journey to Net-zero Put COVID to one side; forget, if you can, the tragedy unfolding in Ukraine. You are left with what we used to call “business as usual,” when all the corporate world had to worry about was the existential threat posed by climate change. ROBIN MARSHALL

That was the world the American Chamber of Commerce in Hungary had in mind when it planned “Journey to Zero,” its first sustainability conference, long before the war became a reality. At one point in the day, AmCham CEO Írisz Lippai-Nagy summed up the nature of a voyage we have all been on. “When I joined AmCham eight years ago, sustainability wasn’t even on our agenda. It was a year and a half ago that some of you, our members, started to ask us questions about this. And here we are at our first sustainability conference.”

Barbara Botos, Deputy State for Climate Policy at the Ministry for Innovation and Technology; István Bart, founder and director of the Climate Strategy Institute 2050; Endre Ascsillán, CEO and vice president of GE Global; and Antonella Sopranzetti, EU Affairs manager at ExxonMobil. While Bart praised the steps the government had made, he was critical that they did not go far enough. “We have a national climate law, but that is just five paragraphs; it does not have any serious steps.” He described government communication on net-zero as a “thought experiment: very interesting, but there is no power. What the government requires from itself and people to achieve it is not there.” But he also said the companies represented in the conference room were “complicit” in not doing more with their economic power to push the government to move faster and further. A series of inspiring “Sustainability Claudia Patricolo, of CEE Energy News (left) and climate and Stories” were presented in TED-talk sustainability expert Martin Porter. Photo by Lázár Todoroff. style. Joerg Bauer, president & CEO of Tungsram, talked about defeating world hunger by creating “circular food hubs” The summit, held at the Kempinski natural that the focus is on Ukraine right from verticle indoor farms. Liz Madaras, Hotel Corvinus Budapest, featured now,” the drive for a more sustainable founder & CEO of Poliloop, described speeches, moderated discussions, future cannot be put on hold. how her team worked to find bacteria that inspiring stories and breakout sessions. “Climate must remain our North can break down polymers. Managing Gábor Baranyai, Deputy Permanent Star,” he said. “Strategically, it makes director and global head of ESG research Representative and Hungary’s no sense for it not to.” He said he and development at MSCI Oliver Ambassador to the EU, gave the was cheered by how climate change Marchand explained how his former keynote speech. That was followed remained forefront throughout the startup used data science to accurately by what many judged to be one of the pandemic. Putting action off was not map carbon footprinting and measure highlights of the day. an option, he argued. “It just becomes carbon risk in “climate investing.” This was a discussion with Martin more expensive and much worse.” Christopher Mattheisen, managing Porter, executive chair of the Cambridge director of Microsoft Hungary (speaking, Fit For 55 Institute for Sustainability Leadership in as he joked, without the benefit of a A discussion on the country impacts Brussels, expert advisor to the European PowerPoint presentation), described arising from the EU’s “Fit For 55” package how the software and cloud services Commission’s Horizon 2020 on climate (which refers to the EU’s measures for and resource issues, and senior strategic firm “provides the plumbing for AI” to reducing net greenhouse gas emissions adviser to CLG Europe. Opposite him help with everything from dealing with by at least 55% by 2030) might well have was Claudia Patricolo, editor-in-chief wastewater to monitoring prehistoric been the most engaging session, if only of CEE Energy News, who began her wild horse herds. because it included dissenting (if politely journalistic career in Hungary as an The afternoon was rounded out with expressed) opinions. intern at the Budapest Business Journal. four breakout sessions that debated the Moderated by Thomas Narbeshuber, Answering a question from the floor issues around clean energy, the circular vice president for Central and Southeast economy, mobility, and sustainable towards the end of this session, Porter Europe at BASF, the panelists were: made the point that while „it is only financing and EU taxonomy.

Ukraine

Crisis Nearly 180,000 People Enter Hungary From East The number of people who have crossed into Hungary from Ukraine reached 178,894 by early on March 8, government spokesperson Alexandra Szentkirályi said after a meeting of the National Humanitarian Coordination Council, according to a report by state news wire MTI. Szentkirályi said Hungary’s catastrophe protection agency had organized temporary accommodation for 3,252 people, including 1,780 children. She added that the government had allocated HUF 3

Roundup billion to charities assisting war refugees and some HUF 2 bln in aiding people who remain in Ukraine. She noted that the government had exempted hotels that take in war refugees from the tourism tax. Local councils’ spending on aid will also be accounted for with the coordination of the Ministry of Interior, Szentkirályi added. She said donations to Bridge for Transcarpathia, a charity drive for war refugees initiated by the government, now add up to more than HUF 591 million. State secretary Miklós Soltész, who chairs the National Humanitarian Coordination Council, said charities had helped 81,600

people in Transcarpathia, Ukraine’s westernmost region and home to a large ethnic Hungarian population, in the past week. He said Suzuki and Toyota each offered six vehicles to support aid delivery to the refugees.

Tesco’s Business Unaffected, Backs Humanitarian Aid British-based retailer Tesco has told the Budapest Business Journal that the Ukraine crisis has not directly affected its business or supplies, adding that it is doing what it can to back humanitarian efforts. “The stocks are at the right level in our stores and warehouses, and we are confident in our supply chain and our ability to serve customers with the products they need,” the Tesco press office said in response to questions from the BBJ. “We are committed to supporting humanitarian relief efforts through our partnerships with

the Red Cross, food banks and other relief organizations, like Interchurch Aid (Ökumenikus Segélyszervezet) in Hungary,” the press office told us. “Our first donations of food, hygiene products and clothing left depots in Hungary, the Czech Republic and Slovakia on Feb. 26, 48 hours after the crisis started,” Tesco’s press office noted. “We will continue to work closely with official relief organizations in all three countries, as well as local governments.” In Hungary, Tesco is working with its strategic partner, Hungarian Interchurch Aid. “To help it provide essential aid to those in need, besides the product donation we have and continue to offer, we have announced a charity coupon fundraising campaign in our stores between March 2-18. Customers can purchase charity coupons in our stores and online, and Tesco will double the customer donations during this period.”

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Country Focus China

‘China’s Market is Huge: Whenever They Want Something, They Want a lot of It’ Csaba Wolf is vice-president of ChinaCham, the Hungarian-Chinese Chamber of Economy. He studied at the International Politics faculty, Beijing University from 1986-92 on a foreign ministry scholarship and served as a commercial counselor at the Hungarian embassies in Pyongyang and Beijing in between stints at private companies. BBJ STAFF

BBJ: You have a long experience with Hungarian-Chinese relations. What’s your take on how Chinese-Hungarian commercial ties have been developing? Csaba Wolf: Actually, Hungarian-Chinese relations have always been good [although] after the Hungarian changes in 1989, trade went down. The first re-opening started around 2002. That government was aware of the importance of the relationship with China and started rebuilding them. Because of that, very soon, the Bank of China established a branch here in Hungary around 2003-4, direct flights between Budapest and China began and trade started to develop again. BBJ: And investment began to take off? CsW: Investment from China did not really start that fast at the beginning, and Hungarian investment did not go to China and is still not much. We have some Hungarian companies there, but not very many. Nowadays, we have a lot more Chinese companies investing this way. All governments since 2002 have emphasized the importance of building relationships with China, except that after 2010, there has been a special policy, the “Opening to the East” of the current government, that aims to build a strong economic relationship with China and all the region, even the Asian postSoviet states, and Japan and Korea. BBJ: What was the first significant investment? CsW: The first was Wanhua, which acquired BorsodChem [the chemical plant in Kazincbarcika, 187 km northeast of Budapest by road]. That was worth EUR 1.5 million in total. I was a part of that deal as the Hungarian commercial counselor in Beijing at the time, so I’m kind of proud

of it. It’s still probably the biggest single Chinese investment in the region. BBJ: I get the impression that today Huawei [the Chinese IT-telco] is one of the most prominent investors? CsW: Huawei is very important. They have an office here with a few hundred people and their European supply center, their logistics center, near Budapest. It has a contract manufacturing company, so yeah, they have a lot of operations in Hungary and employ a lot of local people too. There are others: for example, Semcorp is building a factory near Debrecen for electric battery components [foil separators]. That’s quite a big investment [reported as EUR 183 mln], and it’s a greenfield. That’s important because the Chinese, in the beginning, did not really seek greenfield investments; they preferred operating factories, as with BorsodChem. And the Bank of China is developing fast in the region; they’ve opened branches in Romania, Serbia, Austria and the Czech Republic but kept Budapest as the regional center. BBJ: It’s kind of prestigious for Hungary? CsW: Definitely. And this is one of the aims of the government, to make Hungary a financial center in the region for thirdcountry investors. The China Construction Bank will also open a branch here soon, maybe in the first half of this year. It’s one of China’s four biggest banks. And the China Development Bank or the ICBC, China’s biggest bank, has intentions to open here too. BBJ: So we’ll have at least three very large Chinese banks here? CsW: You can say for sure after they’ve opened, but they have this plan. If you think about it economically, trade and investment, jobs in Hungary, markets for Hungarian products, and probably

Csaba Wolf well-priced, Chinese products, even highquality products, in Hungary, this is all good. The Chinese economy is developing very quickly, at about 6% per year. BBJ: And the base is massive. CsW: Yeah, the base is really massive. Living standards have grown in China, salaries are higher, the middle-class is becoming big, and technological solutions in China are in some cases way ahead of other countries in the world. Take 5G technology or a lot of software services, IT solutions, payment solutions. China even has a digital currency development, not the traditional bitcoin kind, but a digital Chinese yuan. They have already started experimenting with it to digitalize their currency.

BBJ: In other words, it’s worth just being plugged into the Chinese economy? CsW: Yes. They are way ahead of us in certain areas, and we can learn from them. Even their automotive industry; they manufacture the most number of cars per year [of any country]. Probably by value, it’s not as much as the USA, Japan or Germany, but the number of cars. Quality? Yeah, they are behind quite a lot of countries, but they are developing very quickly. For affordable electric vehicles, probably Korea’s are the best now, but I’m not sure that will be the same in five years. BBJ: What about Hungarian exports to China? CsW: A big part of the exports to China are like, for example, Audi, which manufactures engines in Győr, and these are shipped to China to fit into cars made there. But for purely Hungarian companies, it has always been difficult to sell to China. The whole world is competing for that market. Hungarian companies don’t manufacture in big volumes, and the Chinese market is huge, so whenever they want to buy something, they want a lot of it. And this is difficult to satisfy. If we think about products like, say, red wine, which is world-class in Hungary, but production is small by international standards. So, if a Hungarian winery can make a deal with just one city district, or one hotel chain in China, that’s already a huge business. Still, Hungary has technical products that can have a place in the Chinese market, for example, medical equipment. We have some new companies manufacturing diagnostic equipment, microscopes and other medical equipment. If you have a technology developed like no one else in the world, then you can get in.

Chinese Business Etiquette can be Tricky Having lived and worked in China for 10 years, few Hungarians know more about Chinese habits and business culture and how they differ from European norms than Csaba Wolf. Here, he outlines some of his insights into this sometimes crucial aspect of doing business. “It starts with very simple things, like handing over business cards. For the Chinese, it’s always with two hands, and the card must be arranged so the name is immediately visible to the recipient, who in turn must take it with both hands,” he says. Next up, gifts for business partners have to be carefully chosen. “You need to know what would be hurtful if you gave it to a Chinese person, which in Europe might be considered normal.”

For example, one should never give a knife, or anything with a sharp blade, as a present, since to the Chinese, this could represent severing the relationship. However, with increasing exposure to Western business manners, the Chinese themselves are changing and adapting to our business cultures. “I think earlier, in the 1990s, it was a bigger problem. They are learning too,” Wolf explains. Nonetheless, he says he can always spot a Chinese newcomer to Europe. “Seeing a person who’s just arrived and one who’s lived here for five years, for me, it’s obvious: there’s a huge difference between them.”

12 | 3

Focus

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Budapest Business Journal | March 11 – March 24, 2022

During the administration of U.S. President Donald Trump, Chinese technology companies were regarded as a risk potential to Western economies; one above all: Huawei. Recent events, such as the COVID pandemic over the past couple of years and now the conflict in Ukraine, have somewhat blurred the image of the threat, while the emergence of the 5G networks paved the way for Huawei technologies in Hungary. BALÁZS BARABÁS

Photo by Daniel Constante / Shutterstock.com

Free to do Business in Hungary, Huawei Looks for More Speed, Less Energy

measures to ensure product security.” Despite that, things did not get any better for the world’s biggest supplier of telecoms network gear. In December last year, Huawei reported that its annual revenue had fallen by 29% from 2020, as it continued to be weighed down by U.S. sanctions that have hit its smartphone sales. Earlier, in October, the group said its January-September sales volume had

fallen

32%.

As for this year, Guo Ping, who now holds the rotating chairmanship of the firm, said that it will have “its fair share of challenges.”

The Consumer Business Unit at Huawei Technologies Hungary significantly increased sales in 2021, according to data released in January this year. Last year, Huawei sold twice as many smart wearables to Hungarians as in 2020, along with 48% more wireless headphones and 40% more notebooks.

The Trump and Biden administrations in the United States may have little to nothing common in policies, but there is one area of continuity: the ban on Chinese tech companies, especially those linked to the telecom industry. Back in 2019, the U.S. Department of Commerce officially placed Huawei and 70 of its affiliates on the Bureau of Industry and Security’s (BIS) “entity list,” effectively banning the company from The ban presents challenges not only buying components from U.S. companies for Huawei, though. At the annual without government approval. Mobile World Congress in Barcelona, President Trump argued that “foreign adversaries are increasingly creating and Vodafone CEO Nick Read noted that exploiting vulnerabilities in information “at (the) current rate, it will take at least until the end of the decade for Europe and communications technology and to match the transformational, full services.” Huawei responded that it was “ready and willing to engage with the U.S. 5G experience that China will already have achieved this year.” government and come up with effective

Hungary and Huawei

Hungary has never been evangelical about targeting Huawei. Minister of Foreign Affairs Péter Szijjártó announced in 2019 that the company would be involved in the rollout of the Hungarian 5G network. Speaking last year at the China International Import Expo (CIIE) in Canton, Prime Minister Viktor Orbán said that Hungary welcomes China as a trade partner and investor, and Hungary stands by the development of the bilateral relations in all possible ways. He mentioned Huawei as one the major Chines companies to choose Hungary as its hub for European operations. In October last year, the company held its Tech4Green: Digital Power Summit conference in Budapest, where Minister for Technology and Innovation László Palkovics said that cooperation between the government and Huawei is excellent and will become more intensive in the future. As if to underscore that very point, Palkovics and Colin Cai, CEO of Huawei Technologies Hungary, signed a long-term cooperation agreement. Huawei will spare no effort to make Hungary a leader in implementing

technology,

the document says. MWC Barcelona, which this year ran from Feb. 28-March 3, hosted not only keynote speeches with grim prospects but also the latest in technology. Among the latter was the Huawei Green Target Network concept, consisting of smaller equipment, requiring less personnel for transport, installation and maintenance. Smaller hardware also means less power consumption, not only directly but also indirectly, with less cooling needed. The new concept requires

80% less space, which can be used for installing solar panels, also supplied by Huawei. According to pilot projects, the energy needed for the new system is 58% less than that of traditional ones, allowing significant cost savings for mobile operators.

Green Focus

There is a particular reason for focusing on energy saving and green solutions. While 5G mobile networks are a significant leap in data transfer, they also require significantly more energy, something rarely mentioned in marketing messages. According to forecasts, the increase in data transfer means its share of the global energy used by the telecommunication sector will rise to 20%. It will also contribute to 5.5% of global CO2 emissions. Ericsson estimates that in 2015, the two figures stood at 3.6% and 1.4%, respectively. Faster networks allow the transfer of bigger data chunks, for example, higher definition movies. According to Huawei calculations, an average user will have data traffic of

600 GB monthly,

compared to 9.3 GB on 4G networks and 27.4 GB on 5G networks in May last year. Not to mention self-driving cars, which can consume 4,000 GB of data in one hour. And speaking of electric cars, Palkovics also said at the Tech4Green: Digital Power Summit that Hungary plans to become the second-largest car battery producer after Germany. The Hungarian Government is determined to reach carbon neutrality by 2050, meaning the reduction of greenhouse gases by 95%, Palkovics said. Colin Cai added that 3,000 Huawei experts are working worldwide to make solar energy the primary power source of humanity.

Huawei Figures The Consumer Business Unit at Huawei Technologies Hungary significantly increased sales in 2021, according to data released in January this year. Last year, Huawei sold twice as many smart wearables to Hungarians as in 2020, along with 48% more wireless headphones and 40% more notebooks. Huawei expects a boost to smartphones sales in Hungary, with the launch of the P50 Pro and the foldable P50 Pocket models. Huawei will also focus this year on raising brand awareness and market share with its so-called Smart Scenario strategy, which aims at making a seamless interaction between PCs, tablets, smartphones and smartwatches.

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Budapest Business Journal | March 11 – March 24, 2022

Focus | 13

Chinese Expats in Hungary: The Living Experience As trade and investment between China and Hungary have picked up in the last two decades, Budapest has become home to an increasing number of Chinese expatriates. We asked three such people, from different backgrounds and different parts of their homeland, to describe some of the pleasant and not so pleasant experiences of living in the Hungarian capital. KESTER EDDY

JUNPEI DUAN: Spare a Thought for the Waitress: She has Feelings Too My fourth year of living in Budapest has crept up on me; many unforgettable things have happened in my years living away from my Beijing home. There have been good and bad experiences, and this variety has made me grow into the person I am today. Looking back, I am very glad that three years ago, at the age of 18, I made the right decision to go abroad and come to Budapest. For most of these three years, as a student, I have also been working parttime to earn my living expenses. You can imagine that working and studying simultaneously has been pretty tough. This included working at a Japanese restaurant as a shift manager. In one experience, I met four very young female tourists from the U.K. I didn’t think my service was very professional at the time, but they told me at the end that they were also working in hospitality, understood how hard the job was and gave me a nice tip.

This is the only time in my career that customers have understood my pain, and I am grateful to have met some who could share my feelings. But work is not always filled with such warm moments; indeed, most experiences are still very frustrating. The Japanese restaurant was an allyou-can-eat place, and it included a lot of expensive seafood, sashimi and other ingredients. There was actually a penalty, written on the menu, for when customers took lots of food but then wasted it. This led to some hiding the rice balls of the sushi in various ways and only eating the sashimi on top, which resulted in a fair amount of waste. So, they tried to hide it. The most impressive way for me was to hide it in an empty soup bowl with a lid on it, but some would throw it in the garbage can in the toilet, flush it down the drain, or some other method. Sometimes I couldn’t help but admire their creativity. ZUO FENG: Quaint Trades, Difficult Landlords I’m in banking and finance and have been living in Budapest for almost one year now. Life in the city is colorful and similar to other European cities I have lived in or visited, but, to my surprise, I’ve discovered two traditional jobs that have long disappeared in China, though they were very common for me as a child living in Shanghai. During the pandemic lockdown, I was working from home, and more than once, I got a cold knock at my door and recognized the word mérő (meter in Hungarian) on the caller’s badge. Childhood memories flooded back, and I instinctively knew who the lady was and what she needed to do. In a similar situation, I opened my door to see an old man with a grey beard wearing a hunting cap and apron, only this time I couldn’t understand a word he was saying. But, seeing my confusion, he promptly raised his hand

In the beginning, my own family was against me marrying a Hungarian man, not because he is Hungarian, but just “foreign.” My family thinks, or thought, that a happy marriage only comes if the couple are well-matched and from similar backgrounds. A “foreigner” is way too far from matched in terms of traditional Chinese family values, which focus on children being filial to their parents and parents offering selfless love to their children. Hungarians also very much value their family relations. My husband and I visit his parents twice a month and also spend most important holidays with them. So do my other Hungarian friends. For example, Judit, my Hungarian teacher, graduated and started her career last summer. Even though she studied and now lives in Budapest, she still spends most of her free time with her family in Tiszalök, a small town 200 km away in the northeast. Reflecting on myself, I also love my Nancy Jin family, but I only schedule a video call with them every month. Even when I was studying or working in China, I thought and showed me a pair of scissors. Again, more about having fun with friends or I was overwhelmed by a deja-vu feeling: traveling around than spending more I could almost hear the sound of the time with my family. I feel a bit ashamed hawkers plying their trade in the streets now by comparison. of my neighborhood as a child. He was a There are a couple of daily knife grinder, a long-lost craft in China! routines people do very differently Another surprise: renting an apartment here in Hungary from China that here is like an annual exam for an expat! a new immigrant might find a bit Unlike other cities in Europe or China, inconvenient and unusual. landlords here like to negotiate the rent every year, invariably wanting to up the rate, which is an unmanageable risk for an employee in the banking sector. This year, I thought to fend off the threat of an increase before the end of my rental contract: I had some complaints. Minor, perhaps, but the ventilator fan in my kitchen was too weak and the window blinds, made of metal, rattle and bang like crazy on a windy day. Then my neighbor started work on his apartment, making a racket set to last for four months. This was the last straw, and I told my landlord so. It worked! My old contract expired Junpei Duan on March 1, but the rent will stay unchanged, at least for one more year. NANCY JIN: Impressive Family Values, but Services Could be Better I’m originally from Chengdu, the capital of Sichuan province, southwest China. I studied marine chemistry for my bachelor’s degree. I had a lot of fun with my classmates in the laboratory at that time, but I later realized I was more interested in dealing with people than with ocean water and precipitates. So now I’m a key account manager in industrial real estate, responsible for Chinese and international clients. I’ve been living and working in Budapest for six years. My Hungarian husband is the reason I came here after we met in China. For me, the most eyeopening experience has been to feel Hungarian family values. Because in many ways, they are very similar.

For example, getting any equipment or facility at home repaired is extremely time-consuming. The workers rarely arrive on time, meaning you need to take a day off, waiting patiently for their arrival. This would never happen in China. When shopping for clothes, popular sizes, especially “XS” and “S,” seem to sell out very quickly, but the stores never seem to be in a hurry to restock. In some of the service industries, like beauty salons, people don’t work after normal working hours or on weekends, which is quite rare in China, where things like that go on late into the night. However, as a result, Sundays in Hungary are generally peaceful and quiet, with most shops closed, something which could never happen in China.

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China Continues to Show Interest in Hungary, With More Opportunities on the Horizon Chinese companies are choosing Hungary as an investment location in growing numbers. The experience of the Hungarian Investment Promotion Agency (HIPA) shows that they do so with good reason, and the intensity of investor interest is also a telling sign that the trend is likely to continue.

Minister of Foreign Affairs and Trade Péter Szijjártó (left) at the foundation stone laying ceremony for the Semcorp development.

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PEX Automotive has recently announced that it will expand the capacity of its Hungarian operation at Szigetszentmiklós ( just 22 km south of central Budapest) with a EUR 15 million investment to make more auto parts. More importantly, the company, a member of Baolong, one of the largest Chinese automotive supplier corporate groups, plans to turn the site into the European hub for its automotive sensors division, launching e-mobility and intelligent automotive-related production in the near future. The announcement fits the trend of growing Chinese investor interest in Hungary; similar news stories have hit the headlines in conveyor belt fashion in the past few years. In 2020 and 2021 alone, a total of 17 such projects were handled by HIPA, representing an investment volume of EUR 714 mln and creating nearly 2,300 new jobs. Among these were investments from Chinese corporate giants like Semcorp and Lenovo that picked Hungary as the location for their first European presence. A good indicator of the strength of the economic ties is that China has become Hungary’s fifth most

important trade partner. Bilateral trade volume was up in 2020 by more than 25% year-on-year. As of 2019, heavy capital inflow had made China the 10th biggest investor with foreign direct investment of some USD 2.9 billion, equivalent to 3.2% of the total FDI volume, according to data from the Hungarian Central Statistical Office. In light of the above, it is hardly surprising that the Asian economic powerhouse topped the charts in 2020 as far as investment volume was concerned in Hungary. Chervon Auto, a manufacturer mainly of automotive parts, also decided to set up shop in Hungary. Its factory in Miskolc, a city 195 km northeast of the capital by road, is the first outside China. As Simon Wächter, head of strategic projects and business development, explains to the Budapest Business Journal, Chervon Auto made its choice after careful consideration, having weighed both strategic and financial factors.

Decision Matrix

The strategic criteria focused on geographical location, government and municipality capabilities, as well as availability and quality of labor force. The financial aspects were examined based on operational

costs, labor costs and government support. Mid- and long-term factors also played a role, such as competition for the labor force from larger greenfield investments.

“We can see a general consolidation in the supply chain. Therefore, it is crucial to have a manufacturing footprint in both regions [Asia and Europe] and reach a significant market share from the beginning.” “Hungary and Miskolc offered the most suitable location to us,” Wächter says. “The Hungarian government has compelling arguments with a well thought-through incentive structure, low tax environment for corporations, and a very welcoming and open policy towards Chinese investors. In volatile times like now, it is extremely important to have a strong and reliable commitment from the government towards Chinese investors.”

Indeed, the record low corporate tax of 9% as well as the decreasing tax burden on labor, which now accounts for just 13% for employers, do seem to sweeten deals. Add Hungary’s stable economic and political environment and her “EU entry gate” status to the equation, and the alltime-high FDI to Hungary in 2021, which amounted to some EUR 5.9 bln, is a rational consequence. Apart from the labor pool available at a reasonable cost, Wächter also praises the guidance and support of HIPA and local experts. “This helped us make the process much smoother, and such a structured and supportive approach is crucial for first-time investors like us,” he notes. Chinese investors in Hungary are most active in the automotive, electronics, and chemical industries and the renewable energy sector. One particular driver behind deals has been e-mobility. In this regard, Hungary is definitely among the global frontrunners; together with Germany and Poland, these three countries account for 80% of the total battery supply with a high likelihood of materializing by 2030.

The EV Charge

What is more, according to fDi Markets, an online database of cross-border investments, Hungary is among those

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leading Europe’s EV battery charge. The country attracted the third most greenfield FDI projects in this respect in 2020-2021, just falling slightly short of the performance of the United Kingdom and Germany.

“The Hungarian government has compelling arguments with a well thought-through incentive structure, low tax environment for corporations, and a very welcoming and open policy towards Chinese investors. In volatile times like now, it is extremely important to have a strong and reliable commitment from the government towards Chinese investors.”

The Route to Attracting Chinese Business The foundation of the first Hungarian-Chinese Bilingual School in 2004 was just the start, albeit a symbolic one, of forging closer relations between the two countries. Things picked up speed in the 2010s, after the announcement of the Opening to the East policy, Hungary’s effort to intensify business with Asia. The establishment of the Bank of China’s regional hub in Budapest in 2014 was a clear sign that economic cooperation was

truly deepening. One year later, Hungary was the first European country to sign the One Belt One Road (OBOR) or Belt and Road Initiative (BRI). This economic and commercial development project focuses on improving connectivity and cooperation among multiple countries spread across Asia, Africa and Europe. A flagship project under the BRI is the more than EUR 2 bln upgrade of the Hungarian section of the Budapest-Belgrade railway

bet on e-transformation: its EUR 51 “Chervon can have a first-mover mln greenfield investment will pave advantage and bring in relevant the way to producing two million technical knowledge and experience components per year, a considerable from the Chinese market into Hungary, part of which will take advantage of the and thus Europe as a whole. With determination of the automotive sector our state-of-the-art factory, we can to go fully electric. provide the best technological solutions Placing factories closer to OEMs’ of the highest quality with a localized headquarters has also become essential production network to our customers, due to the disruption of global supply and we are very excited to start with it as chains exposed by the coronavirus soon as possible.” pandemic. The CEE region is reaping Eastern Opening the benefits, therefore, of the recent Asian capital didn’t find its way to Hungary appeal of on-shoring. Wächter by accident. The Hungarian government’s confirms that Chervon’s example “Opening to the East” policy launched in showcases the trend. 2010 marked the beginning of a new era “We can see a general consolidation that aimed to end total dependence on in the supply chain. Therefore, it capital inflows from the West. is crucial to have a manufacturing The figures would seem to underline footprint in both regions and reach the policy’s success: last year, 60% of a significant market share from the the total FDI volume to Hungary came beginning,” he says.

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Chinese projects in Hungary power this e-engine of the economy significantly. To name but two examples, Semcorp is building a lithium-ion battery separator film plant in Debrecen worth EUR 183 mln, which was the largest single deal closed with the involvement of HIPA in 2020. Chervon is also placing its

Focus | 15

Chinese investment deals closed by HIPA 2020-2021 Sector

Volume (EUR mln) Jobs to be created

Electronics

264

1,800

Chemical

291

Automotive

159

365

100

714

2,285

ICT Total

Source: HIPA

link, which will be financed mainly by Chinese capital. 2017 marked the meeting of the 16+1 forum in Budapest, a cooperation framework also known as China-CEEC (that has since become the 17+1) that aims at finding common economic ground between the Eastern giant and Central and Eastern Europe. Hungary is now firmly on the radar of Chinese businesses: in 2021, some 20 of them were considering the country as a potential investment location.

from Asian countries. At the same time, Hungary has become the number one investment destination for Chinese companies in Central Europe. In the past three years, South Korea and China have topped the Hungary-bound FDI country ranking twice (2019 and 2021) and once (2020), respectively. The first wave of Chinese investments targeted existing businesses that were taken over, as in the case of Joyson, KUKA (Midea Group), SEGA (Henan Machinery), and Wanhua BorsodChem. This was followed by greenfield investments from behemoths such as BYD and Huawei.

The Hungarian government’s “Opening to the East” policy launched in 2010 marked the beginning of a new era that aimed to end total dependence on capital inflows from the West. The Hungarian government has also made considerable efforts to forge closer economic relations. It has signed strategic cooperation agreements with nine Chinese firms (Huawei Technologies, Wanhua BorsodChem, Le Bélier, Johnson Electric, Yanfeng, Bank of China, Wescast (Bohong Group), SEGA, and Joyson Safety Systems). The deals signal the willingness of these businesses to accomplish higher value-added production, get integrated into vocational training and tighten relations with domestic suppliers. HIPA’s one-stop-shop management consultancy service model is a perfect fit to serve the needs of investors, guiding them every step of the way. This includes site and reference visits, site selection advisory and a full range of services until an informed investment decision is made, including incentives management. Hungary has been doing very well in regional rankings in terms of investment locations, and since HIPA says it is determined to continue along this path, Chinese investors can also keep looking forward to prime business conditions and tailor-made investor advisory services.

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Special Report Banking

Bank Sector Grows in 2021, Still Lags Pre-pandemic Levels Hungarian banks started this year with increased stability. In fact, the most recent figures from the National Bank of Hungary (MNB) show that in 2021, the net profit of the local banking sector rose by 113% to HUF 820 billion. The growth was fueled by impairment from the previous year’s pandemic declining and business volume growing. However, the sector still has not rebounded to its prepandemic levels. CHRISTIAN KESZTHELYI

Net interest revenue increased 18% to HUF 1.661 trillion, while that from commissions and fees climbed 13% to HUF 932 bln, according to Hungarian state-owned news agency MTI. Impairment and risk provisions were more than halved to HUF 156 bln from HUF 399 bln in the base period.

of 2021 to record an increase of 3.3%; however, this was still below the 3.5% increase in the same quarter in 2020, online daily napi.hu reported. Márton Nagy, Prime Minister Viktor Orbán’s chief economic policy advisor, said in an interview with government-friendly Magyar Nemzet [Hungarian Nation] that government regulatory intervention in 2021, such as the mortgage rate freeze, the repayment moratorium, the easing of restrictions on SZÉP voucher card spending and measures to secure the supply of basic building materials, were intended to “protect households and SMEs from negative cost shocks,” MTI reported. “Unusual times call for unusual measures,” the advisor added.

“It is clear-cut that cryptocurrencies could service illegal activities and tend to build up financial pyramids. The EU should act together in order to preempt the building up of new financial pyramids and financial bubbles. EU citizens and companies would be allowed to own cryptocurrencies abroad and regulators will track their holdings.”

Looming New Technology

As Hungarian banks are developing their technology, promising ease of use and state-of-the-art cybersecurity György Matolcsy, Governor of the National Bank of Hungary. to the end-user, new technologies are emerging in the international market. Blockchain-powered cryptocurrencies have been around for more than a Compared with its international peers, stock rose 17% to HUF 44.627 tln decade now, and are moving well the Hungarian banking sector has and the stock of deposits increased beyond the niche of early adopters and healthy profitability levels at the moment. 16% to HUF 57.426 tln. tech enthusiasts. However, it still has not returned to The overall rate of non-performing Mobile payment platform Cash App, pre-pandemic levels, according to an loans in the lending portfolio more the new project of Jack Dorsey, the analysis by online economic news portal than 90 days past due had reached founder and former CEO of Twitter, portfolio.hu. Both in terms of Return 1.5% at the end of December, down recently integrated the Lightning on Equity and Return on Assets, the from 2.2% in the same month a year Network into its ecosystem, which sector is lagging. Although in 2021, earlier. Broken down to its constituent means that users can now instantly ROE reached 11.6% and ROA 1.2%, up parts, the rate reached 3.5% for the send bitcoin around the world. from 6.4% and 0.6% respectively in 2020, retail portfolio and 1.3% for the Enthusiasts see this development as both key figures are below 2017-2019 corporate portfolio, MTI added. a solution to the two main issues of levels of more than 13% ROE and As loan repayment moratoriums, bitcoin from the end-user perspective: 1.4% ROA annually, portfolio.hu adds. introduced when the economy ground slow (minutes-long) transactions and Lenders’ total assets grew by to a halt as the pandemic spread, came clumsy storing and payment methods a year-on-year 16% to HUF 70.186 tln to an end, the decreasing trend of in different types of wallets. at the end of 2021, while lending NPLs reversed in the fourth quarter

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“The breathtaking pace of financial innovation needs quick enough new financial regulations. We must treat stablecoin providers like deposit banks because they are really deposit banks. This is true for all financial innovations in all members of the global financial world.” As both end-users and bankers are grappling with the world of cryptocurrencies and the latest fad of non-fungible tokens, or NFTs (noninterchangeable digital assets stored on the blockchain), the market must be alert to how these new technologies evolve. They may be a passing craze, but it is also worth remembering that when credit cards first hit the streets, the majority of people were skeptical that a piece of plastic could be used instead of hard cash. Editor’s Note: The Budapest Business Journal asked the Hungarian Banking Association, the MNB and several banks to comment directly on matters impacting the market today such as the rise of technology, cybersecurity and the war in Ukraine but they declined to do so.

INSIDE VIEW

Non-Performing Loans: Basics and Recent Developments Erika Papp

Eszter Török

Managing Partner, Head of Finance CEE/CIS

Senior Counsel, Finance team

CMS

What is a Non-performing Loan? Both companies and individuals may, for various reasons, default on their bank loans. If this continues for a more extended period (in other words, it is not an occasional delay in the monthly repayment), banks may be forced to classify it as a nonperforming loan or an NPL. Banks are subject to strict rules about when and how a loan can be put into an NPL category. Essentially, under European regulations, a loan becomes non-performing when there are indications that the borrower is unlikely to repay the loan or if more than 90 days have passed without the borrower paying the agreed installments. This may happen when an individual loses their job and therefore cannot repay their mortgage as agreed or when a company experiences financial difficulties. Why are NPLs bad? If a bank has too many NPLs on its books, this will reduce its profitability because they generate losses. In addition, to prepare for these losses, banks need to create provisions in their books; that is, they need to put aside money to cover the losses they expect to incur. These funds are, therefore, no longer available to provide new loans or to absorb other losses. This further reduces banks’ earnings and weakens their condition. What Steps Might Banks Take? Banks follow pre-determined lending criteria to properly assess the creditworthiness of borrowers to ensure that loans are only granted to customers who are likely to repay them. Despite these steps, banks tend to accumulate a sizeable portion of NPLs. As of December 2021, the level is 3% of all loans in Hungary and 4.2% among mortgage loans. Once the amount of NPLs within a particular bank’s portfolio becomes very high, the tendency is to sell off the nonperforming loans at a significant discount either one by one (this is typically only the case for loans to companies) or in a larger package (this happens both for corporate loans and loans to individuals). Depending on how the sale is structured, borrowers are typically notified of the sale and do not have a say in the transaction; once informed, they automatically owe their debt to the entity that has bought their loan. The buyer is usually a non-bank entity that is subject to less strict prudential rules than banks and is, therefore, able to hold the NPLs on its books. After acquiring an NPL, the buyer will typically either try to come to an agreement with

the borrower or, if that is not successful, it will enforce the security behind the loan (for private individuals, this is typically a mortgage over their property), acquire the mortgaged asset and then sell it off. Hungary’s Current Picture While the overall NPL rate of Hungarian banks was above 10% in 2015, by the third quarter of 2021, it has dropped to 3%. Between 2016 and 2019, several banks sold off large NPL chunks, thereby reducing the overall NPL rate. After the coronavirus epidemic started in early 2020, the National Bank of Hungary introduced a debt moratorium for companies and consumers. Between March 2020 and October 2021, all borrowers were automatically relieved from their obligation to pay their loan installments unless they expressly indicated that they wanted to continue paying. This also meant that non-payment did not result in a default under the loan agreements and these loans did not count towards the NPL rate of a bank (or the overall NPL rate). From November 2021, the automatic general moratorium no longer applies. That said, pensioners, families expecting or raising children, those on public work schemes, and people whose incomes have fallen compared with the previous year are still eligible for continued participation in the moratorium until June 2022. Companies could also request a continuation of their moratorium if their turnover had fallen by at least 25% in the previous 18 months. In practice, this means that significant numbers of Hungary’s borrowers have not had to pay back installments on their loans for two years. This has kept the NPL rate artificially low. It is widely expected that, after the moratorium ends (this is currently foreseen to happen in June 2022), hundreds of thousands will face difficulties in restarting their repayment regime, with an increased rate of inflation not helping the process. This will likely result in a gradual increase in the NPL rate from Summer 2022. From 2023 to 2024, it is expected that the Hungarian NPL market will be reactivated, with banks once again starting the process of selling off NPL packages to debt collection companies and other investors.

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But even as crypto gravitates towards traditional bank service providers elsewhere in the world (the Chinese are said to be experimenting with their own state-approved electronic currency), the Hungarian watchdog has taken a firm stance. National Bank of Hungary Governor György Matolcsy backs the banning of certain cryptocurrency activities in the European Union, MTI reported, citing an opinion piece penned by the central banker posted on MNB’s website. In response to a Financial Times article, Matolcsy said he “perfectly agrees with the proposal” by the Russian central bank to ban crypto trading and mining. The governor also said he backs the senior EU financial regulator’s point that the bloc should ban so-called “mining,” the method used to produce most new bitcoin. “It is clear-cut that cryptocurrencies could service illegal activities and tend to build up financial pyramids,” Matolcsy said. “The EU should act together in order to preempt the building up of new financial pyramids and financial bubbles. EU citizens and companies would be allowed to own cryptocurrencies abroad and regulators will track their holdings,” MTI cited the governor as writing. In another piece, Matolcsy argued that financial innovations, such as stablecoins, must be regulated. Stablecoin is a class of cryptocurrency that attempts to offer price stability in the highly volatile world of electronic money as it is backed by a reserve asset. In response to another FT opinion piece that stated stablecoin firms must be regulated “like the banks they are,” Matolcsy said that stablecoin, a financial liability that is liquid as money, “is inherently runnable” and that translates as a financial stability risk for creators of crypto-currencies, banking sectors, consumers, and for governments and central banks, MTI reported.

Special Report | 17

18 | 4

Special Report

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Sberbank Hungary Falls With Austrian Parent on Sanctions Against Russia Photo by Primakov / Shutterstock.com

Sanctions against Russia pushed the regional unit of Sberbank into failure, making the entity one of the first victims of the economic measures sparked by Russia’s invasion of Ukraine.

CHRISTIAN KESZTHELYI

The demise of the Vienna-based Sberbank Europe AG came at a “lightning speed,” the European Union’s Single Resolution Board (SRB), the authority responsible for the restructuring of failing banks, said. Effectively, the troubled Austrian parent dragged the Hungarian unit down with it. Sberbank Europe admitted in late February that it had “faced an exceptional outflow of funds and a number of safety concerns regarding its employees and offices,” the Financial Times (FT) reported. The Austrian parent added that it was unable to provide liquidity to its European operations as Russia’s central bank had already been prohibited from moving funds abroad under the Western sanction regime. On March 1, the Austrian Financial Supervisory Authority (FMA) prohibited further operations. “In light of the current situation, Sberbank has taken the decision to withdraw from the European market,” a statement by Russia’s biggest lender said, according to FT’s report on March 2. That same day, it was announced that Sberbank Europe Group was insolvent; the Slovenian subsidiary was sold to NLB Group, while the Croatian subsidiary was sold to Hrvatska poštanska banka.

Debts Must be Paid Sberbank Hungary’s liquidator said that those who hold debts with the bank must keep paying their installments following the usual deadlines included in their contracts. The recurring

Double-edged Weapon

The saga for the Hungarian operation started on Feb. 28, when the National Bank of Hungary (MNB) ordered a two-day bank holiday for Sberbank Magyarország after the SRB warned the lender had been experiencing “serious liquidity problems” as a result of the Russian war in Ukraine. A supervisory commissioner was also appointed that same day to take over bank management from the board of directors to ensure proper functioning. The Hungarian central bank cited the SRB when justifying its local measures. The SRB said that Sberbank Europe was probably going to be “unable to meet its debts or other obligations as they fall due in the near future, and as a result, it is failing or likely to fail,” the Hungarian stateowned news agency MTI reported.

Reviewing the Situation

The Hungarian financial watchdog said that it would “review the operation and condition of the Hungarian subsidiary in the current situation and make the most appropriate decision in terms of the stability of the financial markets and customer interests as soon as possible.” At the time, Sberbank Magyarország Zrt. clients were told they would be able to initiate bank card transactions and had been promised they would be able to receive account transfers, but the initiation of account transactions was frozen. The MNB, which is the financial markets watchdog in Hungary as

payments must be made via bank transfer to a selection of bank accounts (depending on the currency of the debt being paid). In the reference section, customers have to include the identification number of the loan contract.

well as the central bank, assured the public that Sberbank Magyarország’s deposits were secured by the Hungarian National Deposit Insurance Fund (OBA). The Hungarian central bank added that the difficulties surrounding Sberbank had not affected any other members of the domestic financial system.

“Sanctions have a price as it is a double-edged weapon, and we will pay this price in the short term. […] This is only the beginning of this crisis.” By the end of the two-day bank holiday, the central bank was limiting repayable funds by Sberbank Magyarország to HUF 7 million per customer, which would start as of March 2 for 30 days to maintain the safe operation of the troubled financial institution. The MNB said this would allow the Hungarian unit to comply with legal liquidity and capital positions provisions. However, Sberbank Magyarország’s lending license was withdrawn on March 1, and its winding up was ordered. The financial watchdog cited international sanctions against Russia as well as “serious liquidity and capital situation” for its decision, which came after the SRB ordered Sberbank Europe AG to be wound up. Hungary’s Prime Minister Viktor Orbán told state-owned Kossuth Rádió in his usual Friday interview that the shutting down of Sberbank in Hungary has been the first hit to the local economy caused by the European Union’s sanctions against Russia. Hungary also supported these sanctions.

“Sanctions have a price as it is a double-edged weapon, and we will pay this price in the short term,” Orbán said in the interview, according to international news wire Reuters. He added that his government had to work to mitigate the direct damage from the measures against Russia. “This is only the beginning of this crisis,” he warned, according to Reuters. Hungary’s Minister of Foreign Affairs and Trade Péter Szijjártó tagged Sberbank as a “victim” of the EU’s sanctions policy, online news portal Euractiv reported, based on reporting by its partner Telex. “Unfortunately, we have the first victim of the Brussels’ sanctions policy; this is the Sberbank in Hungary and Austria,” the foreign minister was quoted as saying in a press conference. Nevertheless, the local market should be able to shoulder the exit of the Russian-owned bank. MNB deputy governor Csaba Kandrács indicated that the Hungarian subsidiary had a share of only around 1% of the local market. Therefore, its liquidation will not cause stability problems in the Hungarian banking system, online news daily index.hu reported. Additionally, clients without high deposits at Sberbank Europe were unlikely to suffer considerable losses, as retail depositors are protected up to EUR 100,000, Euractiv added. In the meantime, the market responded to Sberbank’s demise as expected. With Sberbank customers re-entering the market searching for banking services, competing financial institutions are offering cash incentives for new customers. According to bank360.hu, bank services comparison website, alert and mindful customers opening residential bank accounts these days can receive up to HUF 80,000 in incentives if they choose their new bank carefully. At the end of 2020, Sberbank Magyarország’s total assets stood at HUF 511 billion and client deposits almost reached HUF 355 bln, according to public records.

Sberbank Europe AG Before the collapse, the group had more than 780,000 retail and corporate customers in eight countries in Central and Eastern Europe (Austria, Bosnia and Herzegovina, Croatia, the Czech Republic, Germany, Hungary, Serbia, and Slovenia), served by a staff of almost 4,000. It was wholly owned by PJSC Sberbank, Russia’s biggest bank. The principal shareholder of the Russian parent is the country’s Ministry of Finance, which has 50% of the bank’s authorized capital plus one voting share. Domestic and international investors hold the remaining 50%.

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Banking on Best Practices to Improve Customer Service, Satisfaction Giacomo Volpi has been deputy CEO at UniCredit Bank Hungary since June 2021. In this exclusive interview, he speaks with the Budapest Business Journal about his focus on improving service and the customer experience, importing best practices, and developing the bank in the country. ROBIN MARSHALL

BBJ: Did you have any experience of the Hungarian market when you arrived? Giacomo Volpi: I have followed many Central European markets for UniCredit. I was in Ukraine, for example, as an expat, working for the bank there before we exited the country years ago. My biggest assignment before Hungary was in Bulgaria. I was following other countries – Turkey, Poland, Czech Republic, Slovakia – from Milan, not on an expat basis, but I was traveling to these countries. Hungary, though, I never happened to touch. In the end, banks in different countries have very similar challenges, no matter the competition or regulations. The key thing I am looking at is how to make the customer more satisfied by delivering an excellent service because, for us, they are at the center of everything we do. As market conditions and client demand are constantly changing, there is always room for improvement in serving clients. The target is to provide a better service to the retail and corporate customers, which is our major business here. I think we have already made significant progress, but we want to do even more going forward. BBJ: How was the last business year in Hungary? GV: 2021 was an excellent year for us. Our bank began to grow from the spring despite the pandemic situation. Just to

Giacomo Volpi give you a flavor, lending to customers went up by 8%, deposits from customers went up by around 7%. We measure how long it takes us to reply to a request for a mortgage, for cash, even for a corporate loan. To give you an idea, we target that if a customer comes to us for a personal loan, we approve and disperse the money within the same day. For our corporate customers, where the process is longer and more technical, we want to answer within three days if it’s not a complicated application. 2021 was a very helpful start for us going in this direction. BBJ: The bank has introduced a group-wide strategy. What is this new approach? GV: The group strategy is called UniCredit Unlocked and was presented to the market in December. We are a pan-European bank with 15 million customers and 13 banks. The goal is for these 13 banks to look alike as much as possible, following the same processes to deliver similar products. Certain things come from the specificity of the local environmental framework, but in the end, banking is banking everywhere in the world. This is the best route to leverage a competitive advantage. This means that all 13 of UniCredit’s banks will be connected by a common model, technology, data platforms and principles to deliver best-in-class products and services to our clients. We need to take the best practice in one place and replicate that in every country. We want to harvest the synergies at group level. So, the plan is to make the banks more alike, not only from what the customer sees in terms of the type of products but

also what’s behind the IT platform to deliver these products and the level of services. Concretely, it means for the client that, no matter where they are and no matter which type of channel they use, they will receive the same service and follow similar steps of the process. BBJ: Is there anything specific for Hungary that you’re targeting? GV: We have a strong market position in Hungary in corporate that we want to enhance. And we are, more and more, an emerging player in the retail market. Our target is to be as strong a player in retail as corporate. The central part of the strategy for UniCredit Bank Hungary is to measure the level of services. As I was saying before, we have this target to give cash to a retail customer within one day, to give a corporate customer an answer within three days; for mortgages, to provide customers a reply within 10 days. Another thing that is very important and becoming more so is to play our role in sustainability. Sustainability is embedded in our culture and business, and at the heart of all we do. We have reduced our greenhouse gas emissions by 60% since 2008 and target net-zero on our own emissions by 2030 and our financed emissions by 2050. If you come to our bank, you will see that most contracts are signed digitally. We decreased paper consumption by about 40% last year versus 2018. We will continue on that journey and with green financing for our customers, whether for solar panels or biomass plants. We are eager to participate in more of these projects. From a sustainability point of view, we need to look long-term.

Special Report | 19 BBJ: How challenging do you see growth being in terms of competition in Hungary? GV: It doesn’t matter if the competition is more or less fragmented, whether you have a big player or not. When you start improving the quality of service you give customers, you begin to see increasing growth for your organization. I don’t look much to the others. We look at what we can do to make the client more satisfied. And if you do that, the clients will follow. BBJ: Where are you in terms of digital transformation? GV: We want to deliver an excellent service, and digitalization helps that. Our target is to become a truly digital bank, powered by data in everything we do. All our investment strategies and steps lead in this direction. We ask ourselves, “If we give a service to the customer in the branch, can we give the same service digitally.” But we don’t simply make each service digital. We take the opportunity to rethink the process. How can we do it smarter? What do we ask first? What don’t we need to ask anymore? Every piece of information that we don’t ask the customer for makes it easier for them and us. How can we have one less paper interaction with the customer? Every part of the bank is involved: risk, legal, compliance. Can we do things differently, easier? Together with the IT investment, this is the real challenge of making the process digital.

“In the end, banks in different countries have very similar challenges, no matter the competition or regulations. The key thing I am looking at is how to make the customer more satisfied by delivering an excellent service.” Fundamental to this is that it’s about people. In the end, banking is a service delivered by people. Yes, technology helps, but you need everybody going in the same direction, with everybody motivated to work for those goals and be proud of them. BBJ: Will we see fewer high street branches as the digital element of the bank increases? GV: We’re happy with the size we have. Our target is to digitalize as much as possible. But there will remain services where you want to talk to a person and see different options. We will focus the bricks-and-mortar presence on addedvalue services. If you’re a small business and you need some financing for your company, you might need to sit down with someone to discuss the possibility of one type of loan versus another. As a bank, we will still be using both channels, digital and bricks-and-mortar.

20 | 4

Special Report

www.bbj.hu

Budapest Business Journal | March 11 – March 24, 2022

Commercial Banks

Rank

Ranked by total assets in 2020 (HUF mln)

Company WeBsite

total assets in 2020 (HUF mln)

aFteR tax pRoFit in 2020 (HUF mln)

eqUity (HUF mln)

no. oF Bank BRanCHes in HUngaRy in 2020

pRivate Banking

yeaR estaBlisHed

oWneRsHip (%) HUngaRian non-HUngaRian

top loCal exeCUtive CFo maRketing diReCtoR

addRess pHone email

otp Bank nyRt. www.otpbank.hu

11,154,394

92,474

11,154,394

372

✓

1990, 1949

Investors (26), other (4) Investors (71)

sándor Csányi – –

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

4,084,042

31,953

369,729

✓

1990

– UniCredit S.p.A. (100)

Balázs tóth Silvano Silvestri –

1054 Budapest, Szabadság tér 5-6. (1/20/30/70) 325-3200 info@unicreditbank.hu

UniCRedit Bank HUngaRy ZRt. www.unicreditbank.hu

eRste Bank HUngaRy ZRt. www.erste.hu

3,620,870

18,907

405,149

124

✓

1998

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

Jelasity Radován Manfred Schmid –

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

k&H Bank ZRt. www.kh.hu

3,242,050

-4,663

30,310

168

✓

1986

– KBC Bank N.V. (100)

guy libot – –

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

RaiFFeisen Bank ZRt. www.raiffeisen.hu

3,199,260

14,522

243,699

✓

1986

– Raiffeisen Bank International AG (100)

györgy Zolnai – –

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

MTB Magyar Takarékszövetkezeti Bank Zrt. (73.38), Magyar Posta Zrt. (17.66), other (8.96) –

levente szabó – –

1117 Budapest, Magyar Tudósok körútja 9/G (1) 311-3110 kozpont@takarek.hu

Zsolt Barna – –

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

takaRékBank ZRt. www.takarekbank.hu

mkB Bank nyRt.2 www.mkb.hu

2,792,636

6,232

202,974

✓

1950

Magyar Bankholding Zrt. (97.17), free float (2.81) –

CiB Bank ZRt. www.cib.hu

2,415,669

11,519

240,901

✓

1979

– Intesa Sanpaolo S.p.A. (100)

pál simák – –

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

CitiBank eURope plC. magyaRoRsZági Fióktelepe www.citibank.hu

560,838

5,416

10,807

✓

1985/2005

– Citibank Holdings Ireland Ltd. (100)

veronika spanarova – –

1138 Budapest, Váci út 80. (1) 374-5000 –

2008

– ING Bank N. V. (100)

tibor Bodor Gyula Réthy –

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

ing Bank n.v. magyaRoRsZági Fióktelepe www.ingwb.com

2,804,940

468,748

-10,779

2,343

112,366

44,120

750

–

www.bbj.hu

Budapest Business Journal | March 11 – March 24, 2022

Special Report | 21

aFteR tax pRoFit in 2020 (HUF mln)

eqUity (HUF mln)

no. oF Bank BRanCHes in HUngaRy in 2020

pRivate Banking

yeaR estaBlisHed

oWneRsHip (%) HUngaRian non-HUngaRian

top loCal exeCUtive CFo maRketing diReCtoR

addRess pHone email

396,029

-95

-1,242

–

1990

– BNP Paribas S.A (100)

Jean-François Bandini – –

1062 Budapest, Teréz körút 55–57. (1) 374-6300 info.hu@bnpparibas.com

andreas d. schwung – –

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

Rank

total assets in 2020 (HUF mln)

Company WeBsite

Bnp paRiBas magyaRoRsZági Fióktelepe www.bnpparibas.hu

CommeRZBank ZRt. www.commerzbank.hu

395,240

230

30,396

✓

1993

– Commerzbank Auslandsbanken Holding AG (100)

kdB Bank eURópa ZRt. www.kdbbank.eu

324,256

-4,663

30,310

–

1989

– Korea Development Bank (100)

min in Hwan – –

1054 Budapest, Bajcsy-Zsilinszky út 42–46. (1) 374-9990 info@kdbbank.eu

Bank oF CHina (HUngáRia) ZRt. www.bankofchina.com/hu/

253,638

790

16,979

✓

2002

– Bank of China Ltd. (100)

kexin li – –

1051 Budapest, József nádor tér 7. (1) 429-9200 bocbp@pronet.hu

magyaR Cetelem Bank ZRt. www.cetelem.hu

1996

– BNP Paribas Personal Finance (100)

péter szabó – –

1062 Budapest, Teréz körút 55–57. (Eiffel Tér Irodaház) (1) 458-6070 cetelem@cetelem.hu

sopRon Bank BURgenland ZRt. www.sopronbank.hu

2001

– Communitas” Holding G.m.b.H. (100)

mag. andrea maller-Weiß – –

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

Zoltán illés – –

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

251,943

107,239

240

14,916

9,953

–

dUna takaRék Bank ZRt. www.dunatakarek.hu

98,283

4,357

–

2013

Emese Balogh (19.90), Garancsi István (19.90), Illés Zoltán Pál (19.50), individuals (40.70) –

magnet Bank ZRt. www.magnetbank.hu

95,246

1,065

25,157

–

2010

FR-Invest Kft. (66), individuals (34) –

Zsolt Fáy, János salamon – –

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

éva Hegedűs – –

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

lászlóné Béke – –

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

gRánit Bank ZRt. www.granitbank.hu

77,550

2,311

55,561

✓

1985

Pannónia Nyugdíjpénztár (10), E. P. M. Kft. (57), employees (16), MKB Nyugdíjpénztár (7.50), other (9.50) –

polgáRi Bank ZRt. www.polgaribank.hu

48,118

-146

3,028

–

2013

Individuals (100) –

notes: (1) Data from the database of Hungarian Financial Supervisory Authority-National Bank of Hungary. (2) Budapest Bank Zrt. will merge into MKB Bank Nyrt. on March 31, 2022.

A = would not disclose,

NR = not ranked, NA = not appliacable

This list was compiled from responses to questionnaires received by March 11, 2022, and publicly available data. To the best of the Budapest Business Journal’s knowledge, the information is accurate as of press time. The list is based on companies’ voluntary data submissions. 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

www.bbj.hu

Budapest Business Journal | March 11 – March 24, 2022

Socialite

Placido Domingo to Reopen Opera House in Private Gala

From the gala on, the Opera House will present a program intended to restore it to what the organizers describe as its “rightful place” as one of the jewels of the international opera scene. On March 13, a new production of “László Hunyadi” by Ferenc Erkel will be staged by general director Szilveszter Ókovács, making his directorial debut. Based on the piece’s original version, the performance will also showcase the artistic and technical virtuosity of the modernized stage machinery of the Opera House. The Hungarian National Ballet returns to the historic building with a new production of Kenneth MacMillan’s lavish “Mayerling” on

On my wanderings through Budapest, I have grown ever more curious about what exactly has been going on behind the corrugated iron surrounding the Opera House on Andrássy Avenue since 2017.

March

14.

Wagner fans will flock to premiers of “Parsifal,” presented by artistic director András Almási-Tóth, and “Götterdämmerung” directed by Géza M. Tóth.

DAVID HOLZER

Opened on Sep. 27, 1884, the Opera House has attracted opera and ballet lovers ever since. Even closed, the Neo-Renaissance palace designed by Miklós Ybl has drawn a steady stream of tourists wanting to selfie in front of one of Budapest’s most important historical monuments. Ybl designed a structure whose architecture and decorations express the power of music, illustrated by stories from mythology. From the very beginning, it contributed richly to opera itself. Bartók’s “Bluebeard’s Castle” and the “Wooden Prince,” as well as all of Zoltán Kodály’s stage works, were first performed here. The Hungarian State Opera Orchestra gave world premieres to more than 100 works, including the

probably the way of all these things, the government finally decided that a complete restoration was in order. Rather than being shut for between one and two years, the Opera House was closed for restoration for almost five after the government decided on a complete makeover. Replacing the stage engineering system installed in 1984 was the priority. It now meets today’s requirements for faster maneuverability, lower noise levels, variability, and exact fitting. Lighting and the fly system (the ropes, blocks, counterweights and other devices that allow a stage crew to move things like curtains, lights, scenery, stage effects and people around) were also updated.

of Mahler’s Symphony No. 1 when he was the music director. The building was last renovated between 1980 and 1984. Which begs the question, how was opera regarded under socialism? As far as I’ve been able to discover through extensive Googling, opera, if it did not thrive, at least survived. The great Plácido Domingo, who will perform at the Gala Reopening on March 12, first appeared at the Hungarian State Opera as Cavaradossi in Puccini’s “Tosca” in 1973. In 2017, it became clear that the Opera House’s stage engineering, auditorium acoustics and historical decorations required substantial work. The function of some of the rooms also needed to be rethought. As is

The acoustics were improved by returning the orchestra pit to its original size and reviving its use as a reverberation chamber. It has also been made mobile. The amount of drapery was reduced and an abat-voix, which projects sound, was installed behind the stage. Judging by the photos the Opera House kindly sent me, the restored interiors are, to reclaim the word from real estate agents, stunning. Floors in the public areas have also been renovated, with the original beauty of the woodwork brought back to life. Marble doorframes in the main staircase have been made glorious again. The ceiling fresco and chandelier are sure to attract the wandering eye.

1889 premiere

Improved Acoustics

During such an ambitious renovation, the arrival of COVID-19 didn’t help. When it hit, efforts and finances were focused on building and opening the Eiffel Art Studios. This is the Hungarian State Opera’s new rehearsal, manufacturing and warehouse area built on the ruins of the old Northern Railway Maintenance and Engineering Workshop, a system of vast covered spaces unique in Europe. Starting in September 2020, the Opera provided more than

100 free

live-streamed performances, chamber concerts, and opera crossovers from the Eiffel Art Studios’ Sándor Hevesi Stage. Many of the rooms that served the behind-the-scenes work of the Hungarian State Opera were moved to the Eiffel Art Studios, making way for a rehearsal room and home stage for dress rehearsals. Rehearsals themselves never stopped, meaning that Opera House audiences will be able to enjoy new productions from the moment it opens with that gala featuring Maestro Domingo.

‘Friend and Ally’

Described by the Opera House as a “friend and an invaluable ally to the Hungarian State Opera for half a century,” Domingo will appear at the Reopening Gala to conduct three pieces rooted in Hungarian music by Berlioz, Strauss, and Brahms. In April, he will return to sing a complete opera as Simon Boccanegra. Repertoire productions include “Die Frau ohne Schatten,” “Mefistofele,” “Simon Boccanegra,” “Porgy and Bess,” “Don Carlo,” “Le nozze di Figaro,” “Andrea Chénier,” “La fanciulla del West,” “Un ballo in Maschera” and “Die Zauberflöte.” There will also be performances of the ballet pieces “Romeo and Juliet” and “Onegin.” There is plenty to look forward to then, although the gala reopening is a private affair. In 1884, the cost of attending the opening ceremony was the equivalent of two horses. A crowd of people who couldn’t afford this demonstrated on the streets outside. They wanted to see not just the exterior but the lavish interior that taxpayers’ forints had funded. I doubt we’ll see the same this time. The full 2022/23 season will be announced today, Friday, March 11. Find out more at opera.hu.

www.bbj.hu

Budapest Business Journal | March 11 – March 24, 2022

Socialite | 23

New Neszmély Emerging From Underrated Region Think of the Neszmély wine region and it is often the large, internationally successful Hilltop winery that springs to mind. While Hilltop was present at the Tavaszi Kvaterka (roughly translated as “Spring Wine Hangout”) event, it was also nice to sample the offerings of other cellars from an underrated region. ROBERT SMYTH

In all, 25 wineries were present at the event held in Tata’s Esterházy Pezsgőgyár (sparkling wine manufactory), with Hilltop represented by Ákos Kamacsay Sr., who makes Hilltop’s premium range under his name, I recently met up with winemaker Szabolcs Fiderman at the Herold Pince in Pannonhalma, where he carries out his day job with aplomb. It was nice, therefore, to get to taste this young vintner’s own-label wines, which he makes together with two friends, under the collective name of N3 Borműhely [Workshop]; the “N” stands for Neszmély. The other two members of the collective are Balázs Katona, who works in IT, and Zsombor Kaári-Kabay, who manages Paulus Bormúzeum restaurant in Mór. Depending on the vintage, they buy grapes from two to three growers with sites on Gerecse Hill and produce up to

6,000 bottles

per year. N3 Borműhely’s wines exude both youthful energy and this cooler climate region’s freshness and fruitiness, which also comes from its soils, with their high limestone content. Their packaging is also hip and funny. The amusingly named Spice Boys Cserszegi fűszeres 2021 is deliciously spicy and has a delightful lightness of touch with lots of zestiness on the palate, with lychee and peppery notes that are typical of the grape variety. Cserszegi fűszeres is a crossing of Irsai Olivér and Red Tramini, and while it’s a more restrained on the nose than the Irsai’s more aromatic attack, it often gives a lot more in terms of substance on the palate. The Sauvignon Blanc, also the same price, positively oozes gooseberry aromas and flavors. The Flocking Fabulous rosé 2021 is made from the Cabernet Sauvignon grape and has a deep salmon color, ripe red fruit, good body and a peppery

twist. These wines give plenty of bang for the buck at HUF 1,790 from shop. n3bormuhely.hu. N3’s Chardonnay 2021 has great varietal purity with a citrusy core and focused linear acidity. This one costs a very reasonable HUF 3,490.

Hiking and Wining

While the Pilis Hills may be more of a place you associate with hiking than fine wine, it is part of the Neszmély wine region. The Szivek Pince is located in the heart of Pilis and first caught my palate’s attention when it came out with a terrific trio made from the Zöldveltelini grape from the 2015 vintage. These were made from grapes from different rows, harvested on different dates, and vinified on different days. Zöldveltelini is the same grape as Austria’s ultra-trendy Grüner Veltliner, sometimes shortened to the groovy GruVe. Szivek has come up with its own catchy Magyarized diminutive moniker of ZéVé, for its premium Zöldveltelini, which is only made in exceptional vintages. When I asked how the ZéVé wines from 2021 were shaping up, the owner/ winemaker Péter Szivek, who runs the winery together with his brother György, told me that due to the hot, dry vintage, thirsty wild boar and deer had snaffled the bulk of the grapes and that the trio won’t appear from this vintage. In 2020, Szivek made a regular Zöldveltelini (HUF 2,500), which has the grape variety’s classic herbal touch, along with crisp citrus fruit. From the last vintage of ZéVé, ZéVé Trilógia III 2017

where it has a charming old cellar in which there’s a striking looking press that dates back to 1867. The winery has 18 hectares, which once belonged to the Archbishop of Esztergom, with 3.5 of those hectares now certified organic and more under conversion.

Szivek Pince is based in Kesztölc (40 km northwest of Budapest by road), where it has a charming old cellar in which there’s a striking looking press that dates back to 1867. The winery has 18 hectares, which once belonged to the Archbishop of Esztergom, with 3.5 of those hectares now certified organic and more under conversion.

costs

Szivek’s Cserszegi fűszeres 2021, which will soon be available, comes from this organic plot. Half of it was spontaneously fermented, with the other half fermented by organic yeast. It is juicy, grapey and has a lychee character, as well as a real purity about it. The Zweigelt rosé 2021 revealed ripe raspberry notes and also came from the organic part of the vineyard.

it is full-bodied, spicy and concentrated, but also elegant. Szivek Pince is based in Kesztölc (40 km northwest of Budapest by road),

Meanwhile, Szivek’s Pét-Nat ( pétillantnaturel, whereby natural bubbles are retained when the still-fermenting wine is bottled in what is called the méthode

HUF 3,900;

Pét-Nat Party

ancestrale or ancestral method) comes from a more resistant Sauvignac variety, which doesn’t need to be sprayed, and is a pear and grapefruit party. Another nice Pét-Nat, also from resistant varieties, comes from Turay Családi Pincészet, from Baj, and is made from Solaris and Borsmenta (the latter comes from the Pécs Research Institute). The bottle was closed with 18 g/l of residual sugar remaining, before fermenting until dry in the bottle. The fledgling but highly regarded Kisbaka Pincészet makes an impressive still wine from Solaris. Zsolt Maller, owner and winemaker of Currus Pince in Dunaszentmiklós,

80 km northwest

of the capital, deliberately leaves the grapes out on his one hectare of vines (which are cultivated organically, though it is not officially certified) until they attract some botrytis, which he feels brings complexity to the wine. While many consider that the presence of botrytis is overpowering and can block out the varietal character of the wine, it does bring complexity here, as the Currus wines also have texture and fruit. Currus’ Árnyékvilág is a blend of Juhfark, Kényelű and Olaszrizling, aged in third-fill barrels for a year and a half. The relatively long period has taken the edge off the acidic Juhfark and Kényelű varieties, resulting in a concentrated and creamy wine that’s a tad oaky, ideal for those who like a little wood in their wine. Currus’ Furmint comes from four clones and goes under the moniker of Égigérő. One final note from Neszmély: Six wineries from the area, including Hilltop, Szivek, and Kisbaka, are each due to release a “mutual” wine soon that represents the region’s qualities.