Key Elements of the Reform of the Hungarian Banking System: Privatization and Portfolio Cleaning

This paper focuses on some of the major problems of the Hungarian banking system and investigates the possible ways to deal with these problems. It discusses the issue of bank restructuring, concentrating on the large commercial banks for which direct or indirect state ownership is decisive. Special attention is paid to the problem of low quality loan portfolios and the possible ways of cleaning them up, as well as to the ways in which a better ownership structure can be achieved. The paper assumes that these two problems are very strongly linked and thus should be analysed together. Due to its specific intermediary role, a successful reform of the banking system could be an important first step, with a strong positive impact on the rest of the economy as well. The paper argues that the demands of enterprise restructuring can not be met without the active role of the existing commercial banks.