Are Hungarians wealthier than expected? Many moving their money abroad

Global wealth began to rise again last year, with Hungary witnessing an increase of over 200% in average wealth per adult since the financial crisis. However, premium banking clients are now seeking to move their assets abroad in search of more favourable transaction fees. This trend could threaten cash flows and the broader Hungarian economy. Meanwhile, foreign currency loans are reaching record levels.

International trends and Hungary

As Portfolio writes, global wealth resumed its growth last year, with lower-income adults in Hungary experiencing faster growth in wealth than those in higher brackets, according to a recent UBS study. Despite this, Hungary saw an 8% decline in average wealth per adult in 2023 when measured in Hungarian forints. Yet, since the 2008 financial crisis, average wealth per adult in Hungary has more than tripled, ranking it eighth globally in terms of growth. The study also highlighted a significant disparity between average and median wealth, a pattern evident in Hungary.

Hungarians seek to move their fortunes abroad

According to Szeretlek Magyarország, the recent introduction of financial transaction levies and additional charges for currency conversion in Hungary is unlikely to drive the wealthy to move all their assets abroad. However, 10-30% of their actively managed savings may be relocated to foreign providers, as reported by hvg.hu based on Blochamps Capital’s analysis.

The National Bank of Hungary (MNB) has observed a significant shift, with financial institution deposits falling by nearly HUF 1,200 billion (EUR 3 million) in July, while foreign currency deposits rose by HUF 492 billion (EUR 1.25 million). This shift is directly linked to the new measures, particularly affecting premium banking and affluent clients, who may find the extra 0.9% transaction fee a more significant burden. Consequently, there is growing interest among these clients in opening foreign accounts, particularly with banks offering international networks.

Photo: deposiphotos.com

Why is this a problem?

István Karagich, the managing director of Blochamps Capital, warns that while it is unlikely that a significant portion of Hungary’s wealthy will move their entire wealth abroad, the relocation of 10-30% of their regularly invested assets to foreign providers could pose serious risks. Such a shift could reduce cash flows within Hungary, negatively impacting financial markets and the broader economy. To maintain the profitability of financial service providers and bolster investor confidence, it is essential to keep as much wealth as possible in Hungary, actively participating in local financial markets. A decrease in circulating funds could also lower public revenues, making long-term economic financing more challenging.

Surprisingly high rate of foreign currency loans

Telex reports that foreign currency loans now account for nearly half of all corporate loans in Hungary, a level not seen since a decade ago. The total stock of corporate loans reached HUF 12,780 billion (EUR 32.5 million) by the end of June, with most of this year’s increase driven by exchange rate changes, as the EUR/HUF rate climbed from 382 to around 395.

In addition, the rise in foreign currency loans, now totalling HUF 6,297 billion (EUR 16 million), is attributed to the scarcity of state-subsidised loans and the rising cost of forint loans. Foreign currency loans are primarily utilised by companies with substantial foreign currency revenues, such as exporters and real estate operators. However, for firms with forint revenues, these loans remain risky due to exchange rate volatility, as experienced during the 2008–2009 financial crisis.

Read also:

• Approximately 100 individuals with extreme wealth live in Hungary
• Central Statistics Office: Hungary GDP up 1.5 pc in Q2

Featured image: depositphotos.com