UPDATE 2-Hungary plans to scrap state support for home savings bank deposits

Hungary's government plans to end state subsidies for home savings bank deposits, saying that the scheme was too costly, inefficient and had failed to encourage the construction of new houses.

The measure, to be debated in parliament on Tuesday, could affect banks that sell subsidised savings products in Hungary, including Budapest-based lender OTP Bank, and Fundamenta, majority-owned by Germany's Bausparkasse Schwäbisch Hall.

After taking power in 2010, Orban imposed hefty taxes on banks to shore up state finances and introduced measures to help borrowers at the expense of lenders. But in a landmark 2015 agreement, he agreed to cut the bank tax and refrain from further unilateral measures that could damage banks' profits.

Scrapping the subsidy from the home savings product is unlikely to make a big dent in earnings for the majority of lenders, but it could impact Fundamenta, Hungary's biggest home savings bank.

Fundamenta is yet to make a profit on the capital it invested, its chief executive Bernadett Tatrai told news website portfolio. hu, adding that the company remains committed to the market.

"Scrapping the state subsidy creates market constraints, but that is not necessarily negative as it forces everyone to reconsider (strategies)," she told a conference.

OTP made 2.4 billion forints on the product last year, less than 1 per cent of its overall profit.

"If the state subsidy thus saved is used to expand other home subsidy schemes, then this causes us no problems," OTP chief Sandor Csanyi told a press conference. "I don't think this will affect the bank's profits significantly."

Austria's Erste Bank and Dutch lender Aegon, have made losses on the products for several years, according to company records. Aegon said it had stopped selling them.

CONSERVATIVE HUNGARIANS

The fast-track measure comes amid a general improvement in Hungary's economy and a boom in lending, which has bolstered banking profits.

"Erste and Aegon probably don't mind much," Concorde Securities analyst Gellert Gaal said. "Fundamenta lost the most, while OTP doesn't even notice."

He added that Hungarians tend to invest conservatively, so home savings customers will probably turn to government bonds.

The bill, which if passed will end subsidies immediately, caught the market by surprise.

"This form of savings does not effectively support home creation objectives, while service providers are realising extra profits on part of the state subsidies," ruling Fidesz party lawmaker Erik Banki said in the bill.

Banki said the main lenders have made profits of almost 60 billion forints ($215.52 million) on the scheme since Orban's government took power in 2010. He said the scheme would cost the country more than 70 billion forints this year.

Hungarian real estate broker Duna House Holding said that scrapping the subsidy may cut the volumes of the scheme to zero and could hurt its results in the short term.

OTP shares were up 0.8 per cent at 1128 GMT while Duna House added 4 pct after a steep fall on Monday. ($1 = 278.4 forints)