Chapter 12: Cases of Corporate (Mis)governance in the Hungarian Banking Sector
Júlia Király, Katalin Méro and ˝ János Száz INTRODUCTION During the turnaround of the 1980s and 1990s the Hungarian economy experienced a serious macroeconomic crisis. A key element was the ‘external shock’, the large-scale loss of external markets in 1991. Loss of markets, according to both micro- and macroeconomic evidence, contributed to the relative over-indebtedness, the capital loss and the asset devaluation of the corporate sector. In 1991 GDP and investment fell by nearly 12 per cent, exports by over 15 per cent and industrial production by 17 per cent. Extensive corporate research (Major, 1995) revealed that 40 per cent of all businesses made losses. In the second quarter of 1991, 70 per cent of surveyed companies indicated insuﬃcient demand as an obstacle to production, compared to an average of 40–50 per cent in earlier years. The external shock hit a largely indebted and overﬁnanced corporate sector. The relatively young banking sector could not avoid the crisis. In 1993 the overall ROE of the sector fell below – 100 per cent, that is most banks lost their capital. Some banks were, immediately after the shock, consolidated and privatized, some tried to grow out the panic and failed a few years later. There are several papers analysing the economic background of the deep banking crisis of the Hungarian banking sector (for example Kiraly, 1995; Kiraly and Varhegyi, 2003). In the two case studies of this chapter we highlight a special feature of the crisis – corporate...
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