Hungary: How safe is your money in your bank account?

As a result of three years of Covid and the current war in Europe, we are dealing with an increased level of uncertainty in all areas of life. Three years ago, living in stable economic and financial circumstances, no one would possibly have believed a bank in Hungary or elsewhere in Europe could go bankrupt overnight. The Lehman story seemed to be part of the distant past, and in any case it happened far away.

Fortunately, since 2014 national deposit insurance schemes all around Europe have protected depositors’ money in their bank accounts, now up to a limit of EUR 100,000. Some of those schemes and funds are secured from the outset and are on standby to compensate depositors almost immediately. Others raise funds from their members (banks) only if there is a situation to deal with. Like right now.

Shortly after the winding-up of Sberbank Austria was ordered, the Hungarian National Bank (“MNB”) also withdrew Sberbank Hungary’s operating licence and ordered its winding-up. This is a good real-life test of the deposit insurance schemes in each country Sberbank Group operates a subsidiary in and which is now in trouble.

National Deposit Insurance Fund, OBA

In Hungary, the National Deposit Insurance Fund (“OBA”) protects depositors of credit institutions. OBA’s main task is to compensate insured depositors if a bank’s operating licence is withdrawn or its winding-up is ordered.

Consequences

OBA will provide automatic compensation to eligible depositors of up to EUR 100,000 per person within 10 working days. This means people entitled to compensation do not have to separately apply for payment.

It should be stressed that the compensation payment is made on a per-person basis. This means if a person has several accounts with Sberbank HU, e.g. a HUF account and a EUR account, the limit applies once. All depositors are entitled to compensation. This means OBA will make payments to both natural persons and legal persons such as companies. Exceptions may apply, e.g. municipalities, investment funds or insurance companies, as those depositors are not covered. In the case of self-employed persons, personal bank accounts and self-employment business bank accounts are considered to be separate deposits and are therefore subject to separate OBA compensation up to the EUR 100,000 limit.

The compensation applies to both forint and foreign exchange deposits. In the case of a foreign exchange deposit, the amount of compensation and the limit will be determined based on the official exchange rate published by the MNB as of the day preceding the day the compensation procedure starts.

Depositors have 5 years to receive the compensation amount from OBA, starting from the day preceding the day the compensation procedure starts.

If for any reason OBA does not have the funds to meet all compensation requests, the Hungarian state, as the ultimate guarantor, will ensure funding.

European deposit insurance scheme

In November 2015, the European Commission proposed setting up a common European deposit insurance scheme ("EDIS") for bank deposits in the euro area, in addition to the national deposit insurance schemes. This would deepen the economic and monetary union and would reduce the vulnerability of national deposit insurance schemes to large local shocks, ensuring that the level of depositor confidence in a bank would not depend on the bank’s location and weakening the link between banks and their national sovereign states. It is now high time to dust off this idea and pursue its completion at full speed. Although Hungary is not yet part of the euro area, EDIS would certainly make that decision easier.