Voluntary disclosure – Hungary’s central bank reports property value losses

Five specified assets, substantial write-downs – The MNB’s criminal complaint forms part of a clean-up drive in which, according to its own figures, the government has already filed reports in cases totalling 2,000 billion forints.

Budapest. The new leadership of the Magyar Nemzeti Bank (MNB) has effectively filed a criminal complaint against its own past. Owing to the loss in value of five property projects linked to the central bank, it believes there are grounds to suspect breach of fiduciary duty, negligent damage to assets, fraud and abuse of office, the bank said in a statement to MTI on Thursday. The complaint is based on a report reviewing the activities of MNB Ingatlan Kft. and on valuations of the assets concerned, which in some cases are significantly below the values recorded on the balance sheet.

According to the MNB, the auditors identified “significant overpricing” in the property investments, along with valuations that are well below the amounts carried in the accounts. This is said to have caused a financial loss to the central bank. The statement does not specify any forint amounts or write-downs for the individual properties.

Five named assets

In its complaint the MNB cites five properties: the Balatonakarattyai education and training centre, the so-called Bölcsvár, the MNB’s Buda centre, the supervisory centre with money museum, and the Pallas Athéné Conference Centre, owned by Optimum-Omega Ingatlanbefektetési Kft. The complaint relates to the respective purchase and investment structures and to extraordinary impairments.

Back in October the new management had already filed a complaint over the renovation of the MNB’s headquarters; according to the central bank, an investigation into that matter is already under way. The review is now being extended to the five additional properties. The MNB stresses that, after taking office, the new leadership carried out a comprehensive audit, streamlined procedures and is now aligning the bank’s activities with its statutory mandate, while scaling back operations that go beyond it.

A major clean-up

The MNB’s latest complaint comes at a time when the government is pushing for tighter control of public spending and procurement. Foreign Minister Orbán Anita, who is also Deputy Prime Minister, sketched in an article for the Washington Examiner the picture of a government that is tidying up the country in its first hundred days: strengthening the rule of law, ending corruption, reviewing contracts. She writes that the surplus of 991.6 billion forints achieved in the central budget during the new government’s first hundred days was not the result of classic austerity packages and broad structural reforms, but of stricter oversight of expenditure, the termination of overpriced contracts based on public tenders, anti-corruption measures and the halting of politically motivated financial flows.

Corruption, Orbán argues, has hollowed out Hungarian sovereignty because it has pushed the country into ever greater dependence on external financing. She identifies the National Asset Recovery and Asset Protection Authority (NVVH), whose creation was anchored in a constitutional amendment, as the key instrument of this new approach.

2,000 billion in the pipeline

The scale of the clean-up the government claims to be pursuing was illustrated by the Minister for the Prime Minister’s Office, Ruff Bálint, in an interview with the portal Telex. According to him, the government has so far filed criminal complaints in cases totalling 2,000 billion forints. Currently under scrutiny is the think tank Századvég, which has received between 20 and 30 billion forints in public funds for studies and expert reports over the past ten years. Here, too, Ruff has already announced an impending complaint.

Previously, the government had already targeted the media monitoring company Observer, whose contracts he described as running to “horrendous” amounts. A complaint has also been filed against the Kommentár Foundation, for which “around twenty billion” forints are said to have gone into property. At the Nézőpont Institute, payments are “currently being totted up”. The state, Ruff said, has spent 10 to 20 billion forints on services “that ChatGPT can outperform in 0.1 seconds”, and he announced an open tender for future opinion polling contracts, the results of which are then to be published without exception.

In parallel, the government intends this week to lift the secrecy on around one hundred of the so-called 3000-series cabinet decisions. These are confidential decisions which – as Ruff notes – were in some cases signed personally by the then prime minister. They also include the much-cited foreign trips of Lázár János in 2014. Ruff said he knew where Lázár had been, what he had done and why this had been kept secret – and that this should now become public.

Deep in the red: the central bank

The MNB’s balance sheet has become a key element in the budget debate. In recent years the central bank has racked up massive losses, primarily because of the extremely high interest paid on commercial banks’ deposits. Publicly available reports show that, as a result of these sustained losses, the MNB’s equity has turned negative and that interest expenses account for the bulk of the shortfall; the bank’s statement on the property cases now reported, however, does not provide any specific figures.

In its analyses, the European Commission now points to the central bank’s losses as a fiscal risk and places the cumulative losses at around two per cent of gross domestic product. It recalls that, under national law, the Hungarian state is in principle obliged to recapitalise the MNB if its equity becomes negative – albeit over an extended period.

The extent to which the newly reported property write-downs contribute to these figures cannot be gauged from the public information available to date. The MNB has named the assets concerned and the suspected economic damage, but does not quantify the impairments in its statement.

What prosecutors and courts are expected to do

Under Hungarian law, a criminal complaint for breach of fiduciary duty, fraud or abuse of office is followed initially by preliminary inquiries by the competent authorities and – if sufficient grounds for suspicion are found – by formal proceedings involving expert assessments, scrutiny of procurement processes and possible charges against former decision-makers. Asked about criminal liability for past decisions, Ruff Bálint told Telex that every agreement had been signed by someone, while stressing at the same time that it was for the investigative authorities to decide on criminal responsibility.

Ruff announced that the government is working on speeding up proceedings in certain matters involving the use of public funds, so that such cases do not drag on for ten to fifteen years. No specific criminal steps or verdicts are yet known in connection with the property projects now reported by the MNB.

Sources: MTI, MNB annual reports, European Commission
Photo: The MNB in Budapest: the new leadership is having its own property purchases and projects examined under criminal law, Pénzmúzeum / Wikimedia Commons (CC BY-SA 4.0)

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