MFB is prepared for ESG challenges - interview with Dr. Levente Sipos-Tompa, president and CEO
07 June 2023Maintaining levels of lending is also a key priority for MFB
Even in an environment of rising interest rates, the Hungarian Development Bank was able to fulfil its mission and close the year with a stable profit and expanding business activity. Alongside disciplined cost management and careful business planning, it is preparing to continue its activities with the same degree of momentum as in 2023, Levente Sipos-Tompa, Chairman & CEO of MFB, told Világgazdaság. The bank is gearing up to issue bonds on the international market, and it will also be ready to distribute new EU funds by the end of the third quarter.
“How did last year go as far as MFB was concerned?”
“One of the key measures of the success of our operations is net income, and in 2022 we achieved a profit of HUF 6.2 billion. A major reason for this was that we again stuck to our key objective of increasing business activity from year to year. As a result, last year the volume of our commitments topped HUF 1,240 billion despite the fact that signs of a change in the economic environment were already evident from the summer. This means that MFB was able to close a particularly successful year in terms of loans, which includes placements of EU funds, as well as guarantees, bonds and capital investment. What we’ve managed to do through these commitments, including the new placements, is to fulfil our development-bank mission even in a rising interest rate environment, while also achieving a stable profit, which is no mean feat for a fully state-owned operator. Disciplined cost management also contributed to the latter. At the same time, and this is important to emphasise, besides continuously expanding our business activity we also want to fulfil the key role of a development bank, which is ensuring financing and resources for business of all sizes, and in the overall placements we made last year, large businesses as well as small and medium-sized companies and even micro-enterprises were represented in appropriate proportions.”
“In the domestic banking sector, a central consideration of the past few years has been the increasing of efficiency and keeping a close eye on the ratio of costs to revenues. How are cost-efficiency considerations enforced at MFB, and how are you getting on in terms of the quality of the portfolio?”
“We’re constantly working on making our operations faster and more efficient. In recent years, we’ve increased operational efficiency in many areas: so, for example, we’ve revised the financing, decision-making and decision-preparation processes, and of course we’ve made significant progress in terms of digitalisation as well. Besides this, we have very strong cost controls at the bank, partly because we’re managing state assets, but also because we want to use our funding sources chiefly to increase business activity, and not for the bank’s operation. As for the portfolio, its quality is excellent, but in accordance with our cautious risk management policy, we have, of course built, up the necessary reserves.”
“And how did things look for each product group last year; how did the ratios in your portfolio change?”
“In terms of our classic refinancing activity, where we use our own funds, the MFB Széchenyi Microloan Refinancing Programme was the main driver – there, we achieved 67 billion forints in new placements in co-operation with our bank partners. This – when you consider that the maximum amount per contract is 50 million forints – is a very significant sum, and clearly shows that we’ve managed to reach out to small businesses with our services, in other words, the businesses that arguably need them most. The MFB Points network likewise produced outstanding results last year, as we allocated all the funds that were still available from the 2014-2020 EU aid cycle. Of course, our bank partners – OTP Bank, the member banks of Magyar Bankholding (since then merged under the name MBH Bank) and Gránit Bank – deserve much of the credit for this. The co-operation with our partners has now reached a level where we can deliver the kind of performance that’s needed to ensure the efficient and rapid deployment of funds. Needless to say, we’re very much looking forward to receiving the funds from the next aid cycle, which lasts until 2027, so that we can put them at the service of the Hungarian economy as soon as possible.”
“It was recently announced that the loan programmes for financing farming and food-industry businesses will be relaunched. What is the weight of this sector in MFB’s portfolio, roughly?”
“Yes, that’s right; until the end of the year – or until the funds are exhausted – eligible businesses can apply for preferential-rate loans under these programmes, which have an overall limit of 20 billion forints and are specifically intended for improving the liquidity position of companies in the farming and food-production sectors. Under these programmes, agri-businesses, regardless of their size, can take out working capital loans for a maximum term of six years and with a grace period of up to three years. Companies engaged in agriculture and the food industry represent a significant proportion of our customer base, and we intend to preserve this ‘tradition’ going forward.”
“Various subsidised schemes have been playing a prominent role in the corporate financing market for years. The latter have become especially important now, as interest rates on market loans have risen drastically. What do you think the corporate financing market will look like in the period ahead?”
“What we need to see – and all I can do is repeat the statement of Minister Márton Nagy here – is that it’s only thanks to the subsidised schemes that corporate lending levels have been maintained in Hungary. Based on signals from the commercial banks, this situation will continue throughout 2023, as now that we’re in a period of double-digit interest rates, either companies don’t want to take out loans at market rates or doing so would be too great a risk for them. In light of this, it’s obvious that the availability of subsidised loan schemes must be maintained. The Gábor Baross Reindustrialisation Loan Programme and the extended Széchenyi Card Programme will contribute to this. MFB’s plans include the introduction of new products – that will play a similar role in an important area. Regardless of this, it’s obvious that inflation must be brought under control, as this will result in a fall in credit interest rates. There are various predictions in this regard, but we’re confident that by 2024 we’ll once again be in an environment in which rates on corporate loans will fall significantly, and alongside subsidised facilities, market-rate financing will also pick up again.”
“In the financing market, the importance of sustainability considerations is increasing. How is MFB trying to enforce ESG criteria in its own operations and in terms of lending?”
“ESG is of course a key focus for MFB, as it is for other companies. As far as the financing side of things is concerned, going forward we should clearly support investments that will save energy and make the operations of companies more cost-effective. At the same time, as a supervised institution, implementing ESG criteria is an obligatory requirement for MFB: we fully met these expectations and actually exceeded the levels required of us. At the end of last year, the MFB’s sustainability report and our sustainable financing framework were drawn up and we were also awarded the “Family-Friendly Workplace” and “Green Office” labels. These latter already mean obligations beyond the standard ESG compliance criteria required for the organisation and the bank.
On the asset side, let’s put it this way, we also see a very significant potential in ESG, from two points of view. Firstly, in the case of several large international institutions – such as the EBRD, the EIB, or the CEB for example – such funds are already available on the market. Secondly, I think that this is the future, since the corporate sector is seriously lagging behind in terms of sustainability, and we, as a development bank, in co-operation with commercial banks, can play a major role in closing the gap.”
“How is MFB doing in terms of raising funds; are you preparing for another bond issue?”
“No matter how we look at it, MFB has doubled its balance sheet total in the past four years, and this imposes a task on us not only on the asset side, but also on the liability side. The volume of our funds obtained from the domestic and international credit and capital markets has thus increased significantly, which means we have to continuously, year after year, prove ourselves not only on the domestic market but also in the international arena – and this requires prudence, transparency and, above all, professional quality, as market investors must have trust in us. According to our plans, we’ll soon be entering the market again, and this may feature highly in our operation over the next three or four years – if only because, besides the expiry of our existing liabilities, our growing business activity will require us to make a showing on the foreign bond markets. At the same time, it’s important to note that MFB has built up its network of contacts in recent years – it now has brand value, and has developed levels of trust that will enable it to raise the funds it needs in the future too. And that’s something the entire Hungarian bank sector should indirectly benefit from.”
“What are you counting on in terms of EU subsidies?”
“We trust that the steps that Hungary has taken in the past period will be recognised in Brussels. In this situation, MFB must prepare to be able to ensure the availability of these funds as quickly and as broadly as possible: the construction of a system that will assure the institutional structure needed for the rapid allocation of the funds – in other words, the network of MFB Points – as well as the product structure is already underway. According to our plans, all this will happen by the end of the third quarter.”