BANK RESTRUCTURING IN HUNGARY

In this study the authors describe the process of bank restructuring in Hungary. They argue that the "desertion" of the state exacerbated the financial distress of the enterprise and financial sectors. Moreover, the delayed responses of the government were inadequate in many respects. The recapitalization of the banking sector was rather costly, partly because the occurrence of moral hazards were not prevented. Nonetheless, some positive signs can also be seen. The respective portfolios of banks improved signifícantly and this made the privatization of state-owned commercial banks possible. In fact, the sale of these financial institutions was completed in 1997. The controlling-stakes of privatised banks have mainly been obtained by strategic investors and therefore the state no longer has direct control over credit allocation in the Hungarian economy. All these factors suggest that Hungary is, so far, the most successful in transforming the banking sector in the Central European economies. Eventually, this may help the development of the economy as a whole.