Hungary is considering imposing higher taxes on banks after a year-long recession and the fastest inflation in the European Union blew the country’s budget off course. Shares in OTP Bank Nyrt., the country’s largest lender, plunged on the plan.
Record bank earnings expected this year will allow the government to consider raising taxes on lenders further, Finance Minister Mihaly Varga told economists on Thursday. Defense procurements may also be delayed and interest-rate subsidies reduced, while potentially raising the budget gap goal for this year from 3.9% of gross domestic product, Varga said.
Shares of OTP plunged as much as 8% after Varga floated the idea of raising taxes on banks, the biggest drop in six months.Hungary already imposed an extraordinary tax on lenders last year to plug budget holes after record pre-election spending. The sector is dominated by OTP, followed by MBH Bank Nyrt., which emerged out of the fusion of three banks, as well as the units of western lenders including Erste Group Bank AG, Raiffeisen Bank International AG, UniCredit SpA and KBC Group NV.
He said inflation has improved after a period of strict monetary policy he has presided over, which will help reduce the headline rate to 7% in December. The forecast led to a drop in the forint as traders including Miklos Kolba of ING Bank Hungary said it may lead to steeper rate cuts over the coming months. The forint weakened 0.7% against the euro by noon in Budapest, the biggest drop among 23 emerging market currencies.
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