Annual Report. The Development Bank of Hungary

Annual Report

2008 The Development Bank of Hungary

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Contents

5

Introduction

6

Economic environment of MFB Hungarian Development Bank Private Limited Company in 2008

15

Results of MFB Plc.

17

Independent Auditor's Report

18

Balance sheet (assets and equity/liabilities) and off-balance sheet items

19

Income statement

20

Balance sheet according to International Financial Reporting Standards

21

Income statement according to International Financial Reporting Standards

22

Equity differences between Hungarian accounting standards and IFRS

23

1. MFB Hungarian Development Bank Private Limited Company

27

2. Developments in business activities Key objectives of 2008 business plan

27 28

28

Total lending portfolio

31

Programme loans

33

35

Municipal infrastructure development

36

Agricultural development

38

39 40

Lending activities

Enterprise development

Residential energy conservation programmes

Direct loans

Development purpose equity investments

41

Funding activities

43

3. MFB Banking Group

46

4. Activities supporting the core tasks of the Bank

49

Development and Finance Appendices

55

Board of Directors of MFB Hungarian Development Bank Private Limited Company

56

Supervisory Board of MFB Hungarian Development Bank Private Limited Company

57

Management of MFB Hungarian Development Bank Private Limited Company

MFB

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Introduction

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When we evaluated the operating conditions and business opportunities for MFB in the 2008 fiscal year we counted on favourable trends both for the Bank's international funding as well as for the development of the Hungarian economy. However analyses were prepared at the Bank in the autumn of 2007, which indicated that the mortgage market crisis then unfolding in the USA was just the initial sign of major disturbances in the international markets and could lead to the dawn of a new era earmarked by severe economic restructuring and a marked decline. Several variations were drawn up, including worst-case scenarios. However, the majority of external experts ultimately believed that the international fund allocation system functioning on the basis of a quasi balancing, supplementary principle would continue operating in 2008, thereby ensuring cheap funds for development and in general for the increase of consumption. It was also thought that the results of previous stabilisation measures coupled with export growth driven by benign global economic trends would help to accelerate growth rates in the Hungarian economy. Today it is quite obvious that the negative impacts of the global economic crisis, which emerged in 2008 will be unavoidable in economic processes, not just in the year gone by, but also in the year coming after that, moreover in the year of 2010, since the current economic recession is increasingly evolving into a protracted, structural crisis. The global economic crisis has two aspects that influence the activities of MFB: the first is the higher cost and narrowing supply of funds along with changes to funding sources and instruments, while the second is the necessity of re-thinking economic policy tools. These tasks are felt particularly keenly and have major implications in economies that are heavily integrated into the global economy and are highly dependent on external funding. At present it is imperative that economic policy be adapted and adjusted in Hungary and the direct consequences of this were felt in the operations of MFB in the second half of 2008. Despite 2008 being Janus-faced, by the end of the year the operations of the Bank were determined by the need to adapt to the crisis and this is likely to continue throughout 2009 as well. Nevertheless, the figures and features of the Bank's activities in 2008 prove that the strategic principles and mechanisms previously laid down were sound. By sticking to its basic principles MFB was capable of reacting in an effective manner to the adverse changes in international money and capital market conditions fuelled by the crisis, and to the changing development requirements. The crisis-induced situation is rather peculiar: the roles and responsibilities of development banks have grown while funding opportunities have narrowed, but thanks to reserves accumulated in the past MFB remained liquid and able to respond.

Dr. János Erôs

György Zdeborsky

Sándor Czirják

For MFB the global economic recession not only made it more difficult to gain access to international funding, it also triggered growth in demand for the Bank's products whilst restructuring this demand too. Despite the difficult external and internal conditions the Bank managed to close a successful and profitable year in 2008, introducing new products and extending more than HUF 250 billion in loans. Losers in the crisis required more funding but in the medium term we also expect to see the emergence of financing requirements from companies who have adapted more easily to the forced changes, so the range of development banking products will need to meet these challenges. For now we cannot predict exactly, which business sectors and business activities will come to the fore in the near future. This is why – similar to previous years – MFB will strive in 2009 to function as a development bank that is both flexible yet enjoys internal operating stability, a Bank that is able to react quickly and "smoothly" to the external constraints and the reorganisation of economic policy priorities. Only this way can the Bank adjust its funding even more effectively to current demands.

Budapest, 31 December 2008

Dr. János Erôs CEO

György Zdeborsky Chairman of the Board

MFB

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Sándor Czirják CEO

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Economic environment of MFB Hungarian Development Bank Private Limited Company in 2008

]

The economic environment of the Hungarian Development Bank in 2008 was characterised by a certain duality both in terms of international funding and local economic and investment trends. In early to mid 2008 the external environment was still comparatively benign and produced relatively rapid growth, vibrant external demand and plenty of inexpensive funding on the money markets. This situation changed radically in the second half of the year and similar processes began to evolve domestically too. The crisis left its mark on the activities of MFB both directly and indirectly. The direct impacts were felt in the difficulties surrounding international funding and the drop in investment demand of domestic companies, while one of the indirect influences was the contraction in the export opportunities of Hungarian companies. This all led to a fundamental restructuring of demand for the Bank's products, with those alleviating the consequences of the crisis taking centre stage.

The ever more sluggish economic activity and the considerable deterioration in growth and demand expectations in 2008 led to a plunge in prices for fuels and commodities in the second half of the year. These two, self-reinforcing processes caused inflation to slow on a global scale, some countries are even facing a higher risk of deflation.

Quarterly GDP in some CEE countries (compared to previous quarter, %) % 8

4 2.2

2

1.6

2.6 1.7

1.5

1.9

1.5 1.6

1.3

0

In the global economy, the mortgage and housing crisis evolved from the middle of 2008 into a money and capital market crisis and by the end of 2008 had turned into a world economic crisis of an institutional nature, bearing features of general and cumulative overproduction and severely affecting real economic processes. This crisis impacts on almost every player and every function in the economy. At the end of 2008 the crisis processes triggered a self-reinforcing downward economic spiral: the previous growth in investment and household demand that was fuelled by cheap and abundant resources came to a shuddering halt, before demand started to contract dramatically.

7

6

0.4

-0.1

2.1

2

1.2 0.6 0.4

1.4 1.4 0.6

1.9

1.9

0.9

1

0.6 0.5

2.1

1.8 0.8

0.7 0.6 -0.1

-2

0.8

0.3

0.3

-0.9

-0.6

-1.2

-3.4

-4

2007 Q1

2007 Q2

2007 Q3

2007 Q4

Czech Republic

Poland

Hungary

Slovenia

-4.1

2008 Q2

2008 Q1

2008 Q3

2008 Q4

Slovakia

Source: Eurostat data

Quarterly GDP in some developed countries (compared to previous quarter, %)

In recession Compared to the growth of 4.9% in 2007 the world economy slowed down sharply in 2008 but still managed to post a relatively high rate of 3.2%. However, the trend clearly illustrates that we can expect a decline of 1.3-1.5% in 2009. For the most developed countries the forecast contraction in GDP will surpass anything seen since World War II. The United States' economy slipped into recession in the second half of 2008 (according to OECD figures GDP in the fourth quarter fell by 1.0% compared to the previous quarter). Economic growth in Western Europe also slowed significantly and many of the EU Member States fell into recession in Q4, while euro-area GDP declined by 1.5% in the last three months of the year compared to the same period in 2007. The Far East and Central and Eastern Europe have not eluded the slowdown in growth either, mainly because of the sharp decline in external demand, which plays an exceedingly important role in these open economies that are strongly influenced by global economic demand. The contraction in growth rates in the Far Eastern economies resulted in a fall in savings rates in these countries too, which also exerts a major impact on the international flow of funds.

MFB

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% 1.5 0.5 -0.5

1.5 0.7 0.9

0.4 0.5 0

1.2 0.6 0.4 0.5

1.1

1.2 0.6 0.7 0.6 0.2

-0.1

0.3

0.7 0.4

0.4 0.3

0.2

0

0.2

0.7 0.1 -0.2

-0.2 -0.3

-0.5 -0.9

-1.5

-0.1 -1

-0.6

-1.2 -1.5 -2.1

-2.5 -3.3

-3.5

2007 Q1

2007 Q2

2007 Q3

2007 Q4

2008 Q1

Euro area

Germany

France

Japan

2008 Q2

Source: OECD data

MFB

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2008 Q3 USA

2008 Q4

Crisis in the international money and capital markets The cost of funding in the international money and capital markets, which largely influences the Bank's economic environment grew in the course of 2008 and it became increasingly difficult to tap the markets. This all happened in a way that major steps were taken by main central banks since the emergence of the crisis to boost liquidity and have rapidly lowered their key reference rates of interest since October 2008. In an environment devoid of confidence, despite the swift response, the spread between central bank interest rates and the rates on the money market and the interbank market widened dramatically. Although the spread has been narrowing since October 2008, the crisis of confidence means that there is still no substantial interbank lending.

Central bank interest and consumer price index in euro area (2008, %)

% 4.5 4 3.5 3

4

4

4

4

3.6 3.2

3.3

4 3.7

4.25

4 4

4

4.25 3.8

4.25 3.6 3.75

3.3

3.2

2.5 2.1

2

Consequently, the important characteristics of international financial trends in the second half of 2008 were • the fall of reference interest rates in the main global economic centres and • the significant decline in international flows of capital. The reference rate of interest in the USA at the start of 2008 had been 3.0%, with a rate of 4.0% in the euro area and 2.75% in Switzerland; by the end of the year these fell to 0.25%, 2.5% and 0.5% respectively. The Bank of England's policy rate hit a historical low in December 2008 (2.0%).

Fed interest and consumer price index in USA (2008, %) % 6 5

5.6 5 4.3 4

4 3

4

4.9

3.9 4.2 3.7

3

3 2.25

2

5.4

2

2

2

2

2

2 1

1 0

1

1.1

1.6

1

Jan Febr March Apr May June July Aug

Sept Oct Nov Dec

2008 ECB key interest (data as at the end of the month)

Consumer price index in euro area (yoy)

Source: ECB, Eurostat data

The spread between the reference rates of interest and the interbank rates widened drastically and proved to be very volatile during the year. In the euro area the difference between the central bank's key interest rate and the 3-month interbank interest rate was 0.37 percent at the start of the year, which widened to 1.42 by the middle of October before following the rate cuts contracting again to 0.6 percent in November. The trend turned in the last weeks of the year and the rate cuts by the central bank exerted a positive impact on interbank rates (bringing them down), leading to the emergence of a spread having been common at the beginning of the year (0.39 percent at the end of December 2008). At the same time, the spread between corporate loan interest rates and the central bank key interest rate did not decline by the end of the year and remained extremely high (January 2008: 1.23%, December 2008: 2.28%). The US dollar interest rate has undergone similar changes as the differential between the FED rate and the 3-month USD LIBOR rate at the end of January was 0.11 percent, which rose to 3.32 by the middle of October before falling back to 1.18 by the end of the year.

0.1

FED interest (data as at the end of the month)

2.50

1.5

0.25

Jan Febr March Apr May June July Aug 2008

3.25

Sept Oct Nov Dec

US consumer price index (yoy)

Source: ECB, Eurostat data

M FMB F BZ RATN. NÉUV AE LS RJ E LP EO NR T É S

M FMB F BZ RATN. NÉUVAE LS RJ E PL O EN RTÉS

8

9 9

Interest trends in euro area (2008, %) % 6 5.5

5.35

5.43

5.44 5.42

5.14

5.34 4.73

5

5.23

4.5

4.37

4.38

4

4

4

5.82

5.7

5.39 5.38 4.86

5.84 5.6

5.68 5.52 5.55 4.95 4.97

4

5.28

4

5.75

5.07

4.96

4.25

5.02 4.96

4.76

4.86 4.25

4

5.56

5.63

4.76 4.5

4.25

4 3.75

3.85

3.5 3.25

2.89

3 2.5

2.50

Jan Febr March Apr May June July Aug 2008

Domestic macroeconomic trends in 2008 were characterised by a certain duality. On the one hand, the budget situation improved and inflation dropped significantly. On the other hand, the impacts of the global economic crisis emerged at a time when the growth-restricting consequences of the consolidation process previously launched would have been less tangible in the economy, while thanks to the consolidation and assuming constant international conditions, exports along with the domestic demand driven investment demand and growth would have been dynamised. At the same time, domestic and international demand problems left their marks in 2008. Exports grew by 3.4% in comparison to the previous year while imports rose by 3.3%; this represents a substantial slowdown on the growth in 2007 (exports: 15.8%, imports: 12%). Household consumption essentially did not change throughout 2008 (0.1%) and public consumption dropped by 2.1%, and as a result total consumption in 2008 decreased by 0.4% in annual terms.

Sept Oct Nov Dec

ECB base interest (data as at the end of the month)

Corporate loans (within 5 years, new investments)

EURIBOR (data as at the end of the month)

Corporate loans (more than 5 years, new investments above EUR 1 million)

Source: ECB, www.euribor.org

By the end of 2008 the problems emerging simultaneously on the money and capital markets respectively and the real economy and the interaction between crisis processes in these two areas increasingly strengthened each other. To put an end to this adverse, downward spiral, almost every developed economy deployed Neo-Keynesian tools of economic policy adjusted to globalisation processes, while governments were "almost competing" with each other to announce bank bail-out packages and stimulus packages designed to subdue the negative impacts on the real economy. The common thread to these measures – apart from the differences in emphasis and putting budget equilibriums on the back burner – was the stimulation of demand. In most countries this is accompanied by a monetary policy that is also designed to stimulate growth, which attempts to create more benign financing conditions for investors and consumers by sharply cutting key rates of interest.

Impact of crisis on Hungarian economy The economic environment of the Hungarian Development Bank was adversely influenced by many factors: • domestic macroeconomic trends influenced corporate investment conditions in a negative manner from 2007; • international economic, respectively money and capital markets processes increased the cost of funding up and narrowed the supply; • the sharp decline in international demand changed the external fund raising opportunities of domestic companies; • borrowing for investments essentially stagnated on the domestic banking market as the funding options for commercial banks practically vanished towards the end of 2008.

In the first half of last year, MFB macroeconomic analyses expected to see growth pick up in 2008 thanks to the low base figure in 2007 and the "phasing out" of the primary impacts of the fiscal adjustment that restrained demand. This failed to materialise due to the financial crisis that unfolded in the second half of the year which quickly developed into a real economic crisis. In Hungary, factors subduing demand kept accumulating – i.e. the drop in demand related to the fiscal adjustments and then the slowing economic activity due to the international crisis. What is more, the impacts of the domestic stability package constraining growth were greater than expected, meaning they suppressed both supply and demand strongly. Inflation was lower than expected in 2008 due to the domestic and international price trends influenced by the general fall in demand as well as the significant decline in commodity and fuel prices (average annual harmonised consumer price index: 6.0%). 2008 witnessed a marked improvement in the internal equilibrium, by more than was originally anticipated, while the budget deficit totalled 3% of GDP. The economic environment, which was still improving in the first half of 2008 turned extremely unfavourable in the third and fourth quarters on account of the adverse money and capital markets processes. The direct impacts of the international financial crisis in Hungary were first felt by banks and financial institutions as they saw their funding options dwindle – which caused difficulties for corporate and household lending and made them significantly more expensive – and soon the conditions for servicing public debt worsened while the forint exchange rate experienced volatile movements but ultimately weakened considerably. At the beginning of October 2008 the local currency became very volatile and weakened substantially to other currencies.

M FMBF BZ RA TN. NÉUVAELS RJ EE PL O EN R TT É S

M FMBF BZ RA TN. N ÉUVAELS RJ EE PL OE R N TT É S

10 10

11 11

Quarterly GDP and investments in Hungary (compared to same quarter in previous year, %) 1

0.5 -0.1 -0.6 -1.2

-1

Interest rate and consumer price index in Hungary (2008, %)

9

-2

-2.1

7 -3.2

5

-4

-4.8

-5

% 3

2008 Q1

2008 Q3

2008 Q2 Investments volume indices

7.50

7.50

7.50

7.1

6.9

6.7

2.2

2

1.6 1.3

2.6 1.7

1.5

1.9

1.5 1.6

Interest trends in Hungary (2008, %) % 13

12.49 12.53

12

11.78 10.84

11 10 9

9.77 9.88

9.31

9.34

10.03

9.56 8.23

8

7.50 7.50

7

7.80 7.50

11.87

10.92 10.97 10.99

10.30 10.50

9.85

9.99

10.35 10.49 8.84

8.71 8.43 8.25

8.50

8.50

11.61 11.91 11.50 11.10 11 11.17 10

10.50 10.53 10

8.51

8.58

8.50

8.50

8.72 8.50

7.50

Jan Febr March Apr May June July Aug

Sept Oct Nov Dec

2008

MNB base interest (data as at the end of the month)

Corporate loans' rates (within 5 years)

BUBOR (data as at the end of the month)

Corporate loans' rates (more than 5 years)

Source: MNB data

5.7

2 1.4 1.4 0.6

Sept Oct Nov Dec

Consumer price index (yoy)

Source: MNB data 2.1 1.9 1.2 0.6 0.4

3.5

0.9 0.6 0.5

1.9

1.8

2.1

1 0.8 0.8 0.3 0.7 0.6 0.3 -0.9 the-0.1Hungarian economy. -0.6 -1.2

0 -0.1 The adverse economic trends in 2008 accumulated in After the working-day adjustment GDP grew by 0.5% in 2008. The conditions of slowing exports in the -2 -3.4 domestic investments-4.1 second half of the year became increasingly difficult, while contracted by -4 around 3% on the2007 previous2007 year. In2007 addition,2007 funding costs rose made the financ2008sharply, 2008which2008 2008 Q1 Q2 Q3 Q2 Q3 Q4 Q1 Q4 ing of external debt repayments more expensive. 0.4

This increased the external financing risk of the country, which has been countered so far thanks to the credit facilities provided by international organisations, but this increases the level of public debt significantly. The movements in the spread between the MNB reference interest rate and the 3-month BUBOR tallied with trends in the euro area in that the differential generally seen at the beginning of 2008 returned by the end of the year, but the fluctuations in the differential were less pronounced (e.g. the interest rates of corporate loans maturing in more than 5 years were lower in October 2008 than the central bank's interest rate).

8.50 8.50

7

6.6

MNB base interest (data as at the end of the month)

4

Source: CSO data

8.50

5.1 6.5 Negyedéves6.7GDP6.7 növekedés 4.2 (elôzô év azonos negyedévéhez képest, %)

6

GDP volume indices

8.50

Jan Febr March Apr May June July Aug 7 2008

8

2008 Q4

8.50

8.25

-2.3

-3

]

Az MFB ZRT. mûködési környezete

kedvezôtlenebbre %fordul a szigorodó hitelfeltételek és a romló likviditás következtében. A pénzpiaci problémák tovaterjedése, s az ahhoz kapcsolódó reálgazdasági lassulás egyre bizto13 11.50 11 sabbnak tûnik. E hatás mérséklésére irányul a különbözô likviditásnövelô és gazdaságélénkítô 11 10 konstrukciók kialakítása egyes országokban, illetve nemzetközi összefogásban.

%

0

[

Czech Republic

Poland

Slovakia

In 2008 the MFB loan Hungary portfolio (adjusted to the weak forint) totalled HUF 710 billion, which Slovenia accounts for 3.5% of the total loans of the credit institutions operating in form of limited comSource:–Eurostat data of the total loans extended by the pany – without MFB, Eximbank and KELER and 9.9% credit institutions operating in form of limited company to non-financial enterprises. 63% or HUF 446.4 billion of MFB's loan portfolio financed small and medium-sized enterprises, which means that the Bank provided 11% of loans extended to micro, small and medium-sized busiA gazdasági növekedés fékezôdése a reálgazdasági folyamatok jelentôs kamatcsökkentéssel nesses by credit institutions operating in form of limited company. történô élénkítését indította el az Egyesült Államokban, ami a dollár árfolyamát továbbra is erôteljesen befolyásolja és az amerikai valuta folytatódó leértékelôdését eredményezte. 2007ben a meghatározó árfolyam alakulás a dollár gyengülése volt a fontosabb valutákkal 2007 2008szemben (az euróhoz képest mintegy 15%), az árfolyam- és kamatvolatilitás növekedése miatt pedig a Share of MFB in loans extended to Hungarian SMEs 7.0% 11.0% kockázatok is nehezebben kalkulálhatóvá váltak. Emellett az energiahordozók, nyersanyagok és mezôgazdasági termékek árának jelentôs emelkedése mind költségoldalról, mind pedig az Share of MFB compared to totalrévén assets2007-ben of Hungarian inflációs veszélyek erôsödése gátolta a nemzetközi 3.6% folyamatok kedvezô 3.5% irányú banks változását. Annual loan disbursements of MFB compared to investments in national economy

1.3%

2.7%

Mindezek hatására 2008-ban a világgazdasági növekedési ütem csökkenésére lehet számítani, s egyre nagyobb annak a veszélye, hogy az alacsony gazdasági növekedés hosszabb távon is viszonylag magas stagflációs helyzet – bár közgazdasági In 2008 MFB had inflációval total assetsösszekapcsolódva of HUF 1,028 billion, whichjellegû amounts to 3.5% of the aggregate total assets of credit institutions operating in form of limited company (including MFB).



12

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[

]

Results of MFB Plc.

In light of its development bank activity, MFB is a financial institution that is not primarily profit-oriented. The basic aim of MFB is to act as an intermediary for state aid and provide preferential funds to economic segments favoured by economic policy – primarily small and medium-sized enterprises and municipalities – respectively to finance individual projects of significant size. The Bank fulfils these aims partly through its own activity and partly through its subsidiaries within MFB Banking Group. Maintaining the real value of shareholder's equity in the medium term is a key long-term objective both for the Bank as well as the activities of members in the Banking Group, in addition to the fulfilment of tasks related to the state economic policy. From the end of 2002 until 31 December 2008 the Total shareholder's equity of the Bank rose by more than HUF 45 billion, i.e. by almost 50%. Annual growth has floated between 4 and 9%, while the Bank has paid dividends of HUF 17 billion to the state budget and repaid subordinated loans of HUF 9.5 billion.

Change in Total shareholder's equity % 160 149.4

150

142.9

140

133.4

130

127.5

110 100

120.4

117.0

120 109.6 100.0 104.7 100.0

2002

2003

137.9

130.0

111.8

2004

Cumulative inflation

115.8

2005

2006

2007

2008

Change in equity

Equity has risen faster than inflation and the Bank has maintained the real value of its equity in the medium term, while (subscribed) share capital has been unchanged since 2002.

MFB

ZRT.

ÉVES

14

JELENTÉS


15 15

[


2002

Total shareholder's equity IFRS

Share capital

(HUF million)

(HUF million)

91,879

87,570

]

[

Independent Auditor's Report

Az MFB Zrt. tevékenységét meghatározó nemzetközi gazdasági és hazai makrogazdasági 2003 87,570 100,678 feltételek 2007-ben az elôzô évekhez képest kevésbé egyértelmûen stabil és kedvezô jellegûek 2004 87,570 107,465 voltak. A tágabb értelemben vett mûködési környezetünket több világgazdasági bizonytalansá87,570 összefüggô gi tényezô,2005 illetve a magyar gazdaság 117,160 makrogazdasági stabilizációs folyamataival 87,570 a nemzetközi 122,543 határozták meg. Összességében viszonylag 2006 kedvezôtlen növekedési folyamatok 131,254 növekedtek, egy esetleges87,570 gazdaság 2007 fejlôdéséhez kapcsolódó kockázatok világgazdasági korszakváltás2008 több jele is befolyásolta a nemzetközi növekedési folyama137,226 pénzpiaci, strukturális és 87,570 tokat, a magyar gazdaság teljesítménye pedig – részben a belsô stabilizációs kényszer, másrészt a külsô bizonytalanabb feltételek, illetve e két hatás összekapcsolódása miatt is – ellentThe Bank has not drawn dividends from its subsidiary companies, focusing rather on increasing mondásosan alakult. A világgazdaság 2007-ben viszonylag dinamikusan, de az elôzô évekhez their capital strength and their ability to bear risks. képest már kevésbé gyorsan, 4,9%-kal nôtt, az év utolsó negyedévében azonban visszaesett a növekedés. Az év folyamán erôsödô gazdasági bizonytalanságok egyre inkább azt jelzik, hogy The Bank fulfilled its basic objectives in 2008, particularly in the second half of the year when a világgazdaság egyes fejlett, a magyar gazdaság számára strukturálisan meghatározó térséexternal conditions took a turn for the worse. The Bank contributed to the achievement of geiben megnôtt a stagfláció kialakulásának a veszélye, ami közvetlenül a hitelválság kumulatív, economic policy targets by stimulating investment activity in the corporate sector – mainly és a reálgazdaságot is erôteljesen érintô hatásainak, illetve a nyersanyag- és energiahordozók SMEs – and in the municipality sector, by financing related demands for working capital and árának drasztikus emelkedésének a következménye, de egyúttal a gazdasági korszakváltás, a by financing the MFB Banking Group. In terms of its activity and business indicators the Bank strukturális átalakulások felgyorsulásának lehetôségét is magában hordozza. Magyarországon achieved the objectives set in the business plan and fulfilled the expectations of the Founder. ez, a nemzetközi pénzpiaci és növekedési folyamatok strukturális, valamint a költség- és keresleti viszonyok átrendezôdésével is járó folyamat a belsô növekedési feltételek változásával In 2008 MFB substantially increased its loan portfolio with the volume of extended loans együtt ugyancsak egy stagfláció közeli feltételrendszer kialakulásával fenyegethet. exceeding HUF 250 billion overall. The Bank disbursed almost HUF 124 billion under the loan programmes, while new directmeghatározó loans exceeded HUF 127 2007-ben billion. The– total amount of outstandA magyar gazdaság számára térségekben 2006-hoz képest – némiing loans increased from HUF 554 billion at the end of 2007 to HUF 710 billion by the end képp mérséklôdött a gazdasági növekedés üteme, de az Európai Unió egészében (EU27) of 2008. In response to the országokban financial andpedig economic crisis evolving the second half ofmint the 2,9%, a közép-kelet-európai jóval gyorsabb volt aingazdaság bôvülése, year the Bank hasAzintroduced new loantagállamok programmes. It is through working financing Magyarországon. új közép-európai (9 ország) általában 6% capital feletti gazdasági in particularértek that the Bank to meet the demands 2006-os arising due to the scaled back lending növekedést el. Az USAaims gazdasági növekedésének fokozatos mérséklôdése 2007 activity of commercial banks. elsô negyedévében megállt, s a második és harmadik negyedévben újra gyorsulni kezdett az amerikai gazdaság. De az utolsó negyedévben már ismét mutatkoztak a gazdasági lassulás The liquidity position 2007-ben is sound and it has sufficient reserves to discharge its liabilities; it jelei, Bank's és a GDP növekedése összességében 2,2% volt. Japánban a gazdasági növemanaged to expand its negyedévéig loan portfoliotartó considerably new products were released in response kedés 2006 harmadik lassulásaand után újabb konjunktúra kezdôdött, s némi to the changed conditions. MFB operates in a prudent manner, allocating the necessary levels megtorpanás után 2007 harmadik negyedévében ismét 2% feletti ütemben bôvült a gazdaság, of and provisions during the regular rating reviews. TheABank's profitability has 2007 been azimpairment éves növekedés azonban itt is viszonylag alacsony, 1,9% volt. növekedési kilátások stable for negyedévében many years. The 2008 profit before tax calculatedazinUSA-ban accordance with International negyedik a fejlett országokban, elsôsorban romlottak, de ennek Financial Reporting Standardsaz amounted HUF 7.1 billion. kedvezôtlen következményei év utolsótonegyedében is még csak mérsékelten jelentkeztek. Az elmúlt években az USA növekedése és más országok fejlôdése közötti kapcsolat gyengült, The Banknéhány continued its economical to costsfügg in 2008. Operating costsamit totalled HUF azonban ország továbbra isapproach nagymértékben az USA importjától, jelentôsen 9.1 billion inaz2008, whichlakossági amounts fogyasztás to 98.4% ofalakulása. the annualEzért budgeted amount.Államok This is 3.2% highbefolyásol amerikai az Egyesült gazdasáer the továbbra figure from which corresponds to a 3% reduction inkonjunktúra costs in real alakulását. terms. gi than zavarai is 2007, nagymértékben befolyásolják a nemzetközi Ugyancsak ezeket a hatásokat erôsítheti, ha a pénzügyi piacokon a helyzet még

M F BM FZBR TA .N A NN UN A LU ARLE PR OE RP T ORT


16

17 17

]

[

MFB Hungarian Development Bank Private Limited Company Az sheet MFB and ZRT.off-balance mûködésisheet környezete Balance items under Hungarian accounting standards

]]

Az ASSETS MFB Zrt. tevékenységét meghatározó nemzetközi gazdasági ésData hazai makrogazdasági in HUF million feltételek 2007-ben az elôzô évekhez képest kevésbé egyértelmûen stabil és kedvezô jellegûek 31.12.2007 31.12.2008 voltak. tágabb bizonytalansáLiquid assetsértelemben vett mûködési környezetünket több világgazdasági 8,959 5,926 1. A gi tényezô, illetve a magyar gazdaság makrogazdasági stabilizációs folyamataival összefüggô 2. Government securities 141,074 190,302 viszonylag kedvezôtlen növekedési folyamatok határozták meg.363,252 Összességében a nemzetközi 3. Placements with other banks 376,982 gazdaság fejlôdéséhez kapcsolódó kockázatok növekedtek, egy esetleges világgazdasági 4. Receivables from customers 306,667kor264,801 szakváltás jele isincluding befolyásolta a nemzetközi pénzpiaci, strukturális folyama5. Debttöbb securities, fixed-income debt securities 25,000 és növekedési25,000 6. aShares and gazdaság other variable-yield securitiespedig – részben a belsô2,000 9,093 tokat, magyar teljesítménye stabilizációs kényszer, másholdings held to maturity 988 részt7.a Shares, külsô bizonytalanabb feltételek, illetve e két hatás összekapcsolódása miatt is 1,004 – ellent8. Shares,alakult. holdings A in világgazdaság related companies2007-ben viszonylag dinamikusan, 53,236 de az elôzô57,919 mondásosan évekhez 9. Intangible assets 2,180 2,313 képest már kevésbé gyorsan, 4,9%-kal nôtt, az év utolsó negyedévében azonban visszaesett a plant and equipment 4,048 10. Property, növekedés. Az év folyamán erôsödô gazdasági bizonytalanságok 3,940 egyre inkább azt jelzik, hogy Own shares 0 0 11. a világgazdaság egyes fejlett, a magyar gazdaság számára strukturálisan meghatározó térséOther assets 34,832 12. megnôtt 15,620 a hitelválság kumulatív, geiben a stagfláció kialakulásának a veszélye, ami közvetlenül Prepaid expensesis and accrued income 10,333 13,728 és a13.reálgazdaságot erôteljesen érintô hatásainak, illetve a nyersanyagés energiahordozók ASSETS 891,383 1,027,814 a árának TOTAL drasztikus emelkedésének a következménye, de egyúttal a gazdasági korszakváltás, strukturális átalakulások felgyorsulásának lehetôségét is magában hordozza. Magyarországon ez, a nemzetközi pénzpiaci és növekedési folyamatok strukturális, valamint a költség- és Equity and liabilities Data in HUF million keresleti viszonyok átrendezôdésével is járó folyamat a belsô növekedési feltételek változásával 31.12.2007 31.12.2008 együtt ugyancsak egy stagfláció közeli feltételrendszer kialakulásával fenyegethet. 1. Placements and loans from other banks 2. Liabilities to customers

367,077

457,644

12,676

43,406

354,690

370,692

A magyar gazdaság számára meghatározó térségekben 2007-ben – 2006-hoz képest – némi3. Issued securities

képp mérséklôdött a gazdasági növekedés üteme, de az Európai Unió egészében (EU27) 4. Other liabilities 1,541 1,224 2,9%, a közép-kelet-európai országokban pedig jóval gyorsabb volt a gazdaság bôvülése, mint 5. Accrued expenses and deferred income 11,663 15,475 Magyarországon. Az új közép-európai tagállamok (9 ország) általában 6% feletti gazdasági 6. Provisions 3,695 2,491 növekedést értek el. Az USA gazdasági növekedésének 2006-os fokozatos mérséklôdése 2007 7. Subordinated debt 9,500 0 elsô 8.negyedévében megállt, s a második és harmadik negyedévben újra gyorsulni kezdett az Subscribed capital 87,570 87,570 amerikai gazdaság. az capital utolsó(-)negyedévben már ismét mutatkoztak a gazdasági lassulás 9. Subscribed, but De unpaid 0 0 jelei, és a GDP növekedése 2007-ben összességében 2,2% volt. Japánban a gazdasági növe10. Capital reserve 16,256 16,256 kedés kezdôdött,6,050 s némi Generalharmadik reserve negyedévéig tartó lassulása után újabb konjunktúra 11. 2006 5,416 megtorpanás után (±) 2007 harmadik negyedévében ismét 2% feletti ütemben bôvült a gazdaság, 12. Profit reserve 13,351 21,299 az 13. évesAllocated növekedés azonban itt is viszonylag alacsony, 1,9% volt. A növekedési kilátások 2007 reserve 0 0 negyedik negyedévében a fejlett országokban, elsôsorban az USA-ban romlottak, de ennek 0 0 14. Valuation reserve kedvezôtlen következményei az év utolsó negyedében is még csak mérsékelten jelentkeztek. 7,948 5,707 15. Retained earnings (±) Az elmúlt években az USA növekedése és más országok fejlôdése közötti kapcsolat gyengült, TOTAL EQUITY AND LIABILITIES 891,383 1,027,814 azonban néhány ország továbbra is nagymértékben függ az USA importjától, amit jelentôsen OFF-BALANCE SHEET ITEMS Data in Államok HUF million befolyásol az amerikai lakossági fogyasztás alakulása. Ezért az Egyesült gazdasá31.12.2007 gi zavarai továbbra is nagymértékben befolyásolják a nemzetközi konjunktúra 31.12.2008 alakulását. Contingent liabilities 103,076 Ugyancsak ezeket a hatásokat erôsítheti, ha a pénzügyi piacokon a helyzet még 156,916 Commitments

63,214

103,892

Off-balance sheet receivables

83,279

129,727

[

]

MFB Hungarian Development Bank Private Limited Company Income statement according to Hungarian accounting standards

INCOME STATEMENT

Data in HUF million 31.12.2007

31.12.2008

1.

Interest and similar income

59,653

56,044

2.

Interest expense and similar charges

42,416

36,934

NET INTEREST (1-2)

17,237

19,110

3.

Income from securities

1,087

24

4.

Fee and commission income

339

251

5.

Fee and commission expenses

1,628

2,042

6.

Net financial result

557

-353

7.

Other income from business activities

964

585

8.

General administrative expenses

7,677

7,977

9.

Depreciation

1,093

1,074

10.

Other expenses on business activities

1,248

1,412

11.

Impairment on receivables and risk provisioning for commitments and contingent liabilities

10,586

11,807

Reversal of impairment on receivables and utilisation of risk provisions for commitments and contingent liabilities

13,710

11,219

12. 12./A

Difference between general risk provisions allocated and used

353

620

13.

Impairment on debt securities held to maturity and on shares, holdings in related and associated companies

3,104

1,333

Reversal of impairment on debt securities held to maturity and on shares, holdings in related and associated companies

1,368

1,099

14. 15.

Profit on ordinary activities

10,279

6,910

16.

Extraordinary income

15,661

3,373

17.

Extraordinary expenses

15,285

2,400

18.

Extraordinary profit (16-17)

376

973

19.

Profit before tax (±15±18)

10,655

7,883

20.

Taxation

1,824

1,542

21.

Profit after tax (±19-20)

8,831

6,341

22.

General provisioning, utilisation (±)

-883

-634

23.

Use of profit reserve for dividends, profit shares

0

0

24.

Approved dividends and profit-shares

0

0

7,948

5,707

RETAINED PROFIT FOR THE YEAR (±21±22+23-24)



18

19 19

[[

MFB Hungarian Development Bank Private Limited Company Az MFB ZRT. mûködési Balance sheet accordingkörnyezete to International Financial Reporting Standards

]]

Az MFB SHEET Zrt. tevékenységét meghatározó nemzetközi gazdasági Data és hazai BALANCE in HUFmakrogazdasági million feltételek 2007-ben az elôzô évekhez képest kevésbé egyértelmûen stabil és kedvezô jellegûek 31.12.2007 31.12.2008 voltak. A tágabb értelemben vett mûködési környezetünket több világgazdasági bizonytalansáCash and balances at National Bank of Hungary 9,374 6,285 gi tényezô, illetve a magyar gazdaság makrogazdasági stabilizációs folyamataival összefüggô Placements with other banks 362,837 376,623 viszonylag kedvezôtlen növekedési folyamatok határozták meg. Összességében a nemzetközi 307,523 Loans and advances, net of impairment for expected credit losses 265,688 gazdaság fejlôdéséhez kapcsolódó kockázatok növekedtek, egy esetleges világgazdasági korAvailable-for-sale securities 23,935 49,794 szakváltás több jele is befolyásolta a nemzetközi pénzpiaci, strukturális és növekedési folyamaHeld-to-maturity securities 141,638 165,548 tokat, a magyar gazdaság teljesítménye pedig – részben a belsô stabilizációs kényszer, másInvestments 56,224 68,016 részt a külsô bizonytalanabb feltételek, illetve e két hatás összekapcsolódása miatt is – ellentProperty, plant and equipment 3,940 4,048 mondásosan alakult. A világgazdaság 2007-ben viszonylag dinamikusan, de az elôzô évekhez Intangible assets 2,180 2,313 képest már kevésbé gyorsan, 4,9%-kal nôtt, az év utolsó negyedévében azonban visszaesett a Current tax assets 747 116 növekedés. Az év folyamán erôsödô gazdasági bizonytalanságok egyre inkább azt jelzik, hogy Deferred tax assets 0 52 a világgazdaság egyes fejlett, a magyar gazdaság számára strukturálisan meghatározó térséOther assets 46,078 23,311 geiben megnôtt a stagfláció kialakulásának a veszélye, ami közvetlenül a hitelválság kumulatív, Total 1,026,396 és a assets reálgazdaságot is erôteljesen érintô hatásainak, illetve a889,874 nyersanyag- és energiahordozók árának drasztikus emelkedésének a következménye, de egyúttal a gazdasági korszakváltás, a Placements and loans from other banks 367,077 457,644 strukturális átalakulások felgyorsulásának lehetôségét is magában hordozza. Magyarországon Deposits from customers 43,406 12,676 ez, a nemzetközi pénzpiaci és növekedési folyamatok strukturális, valamint a költség- és Issued securities 367,884 351,490 keresleti viszonyok átrendezôdésével is járó folyamat a belsô növekedési feltételek változásával Hedged financial liabilities 4,849 3,018 együtt ugyancsak egy stagfláció közeli feltételrendszer kialakulásával fenyegethet.

Provisions

Deferred tax liabilities

2,673

2,089

120

0

12,066

13,298

A magyar gazdaság számára meghatározó térségekben 2007-ben – 2006-hoz képest – némi-

Other liabilities

képp mérséklôdött a gazdasági növekedés üteme, de az Európai Unió egészében (EU27) Total 749,120 889,170 mint 2,9%,liabilities a közép-kelet-európai országokban pedig jóval gyorsabb volt a gazdaság bôvülése, Magyarországon. Az új közép-európai tagállamok (9 ország) általában 6% feletti gazdasági Subordinated növekedést debt értek el. Az USA gazdasági növekedésének 2006-os9,500 fokozatos mérséklôdése0 2007 elsô negyedévében megállt, s a második és harmadik negyedévben újra gyorsulni kezdett az Subscribed capital 87,570 87,570 amerikai gazdaság. De az utolsó negyedévben már ismét mutatkoztak a gazdasági lassulás Capital reserve 18,082 18,082 jelei, és a GDP növekedése 2007-ben összességében 2,2% volt. Japánban a gazdasági növeStatutory reserves 6,438 6,452 kedés 2006 harmadik negyedévéig tartó lassulása után újabb konjunktúra kezdôdött, s némi Retained earnings 25,552 19,798 megtorpanás után 2007 harmadik negyedévében ismét 2% feletti ütemben bôvült a gazdaság, Valuation reserve (634) (430) az éves növekedés azonban itt is viszonylag alacsony, 1,9% volt. A növekedési kilátások 2007 negyedik negyedévében USA-ban romlottak, de ennek Total shareholder's equity a fejlett országokban, elsôsorban az 131,254 137,226 kedvezôtlen következményei az év utolsó negyedében is még csak mérsékelten jelentkeztek. Total liabilities and shareholder's equity 889,874 1,026,396 Az elmúlt években az USA növekedése és más országok fejlôdése közötti kapcsolat gyengült, azonban néhány ország továbbra is nagymértékben függ az USA importjától, amit jelentôsen Commitments and contingencies 104,013 157,796 befolyásol az amerikai lakossági fogyasztás alakulása. Ezért az Egyesült Államok gazdasági zavarai továbbra is nagymértékben befolyásolják a nemzetközi konjunktúra alakulását. Ugyancsak ezeket a hatásokat erôsítheti, ha a pénzügyi piacokon a helyzet még

[[

]]

MFB Hungarian Development Bank Private Limited Company Az MFB ZRT. mûködési környezete Income statement according to International Financial Reporting Standards

kedvezôtlenebbre fordul a szigorodó hitelfeltételek és a romló likviditás következtében. A INCOME STATEMENT Data in HUF million pénzpiaci problémák tovaterjedése, s az ahhoz kapcsolódó reálgazdasági lassulás egyre 2007 2008biztosabbnak tûnik. E hatás mérséklésére irányul a különbözô likviditásnövelô és gazdaságélénkítô Interest and similar income 60,540 56,013 konstrukciók kialakítása egyes országokban, illetve nemzetközi összefogásban. Interest expense and similar charges

(42,020)

(36,817)

18,520

19,196

Release for impairment losses of loans advances (elôzô év and azonos negyedévéhez képest,4,811 %) % Fee and commission income 339 8 7

(445)

Net interest income

Negyedéves GDP növekedés

Fee and commission expenses 6 Net fee and commission expenses 4

2.6

2.2 Profit from sale of investments 2 1.7 1.5 1.9 2 1.6 1.6 1.4 1.5 1.4 Allowance for impairment losses of investments 1.3 0.6 0.4 0 -0.1 Dividend income -2 Net gain on foreign currency transactions

-4 Other income

2007 Q1 Other operating income

2007 Q2

2007 Q3

Czech Republic General and administrative expenses Hungary Net loss on foreign currency transactions

Other provision charges

2.1 1.2 0.6 0.4

(2,042)

(1,289)

(1,791)

1.9

1.8 303

0.9

1

0.8 (966)

0.7 0.6 -0.1

2008 Q1

2.1 0.8

0.3 -0.6 1,087

101

-3.4

2007 Q4

(1,628)

1.9 0.6 0.5

251

2008 1,690 2008 Q2 2,878 Q3

Poland Slovenia Source: Eurostat data

Other expenses Other operating expenses

Slovakia (9,594)

874 (234)

0.3 -0.9 -1.2 -4.1

2008 Q4

24 0 1,147 1,171 (9,881)

0

(663)

(2,457)

(143)

(696)

(946)

(12,747)

(11,633)

A gazdasági növekedés fékezôdése a reálgazdasági folyamatok jelentôs kamatcsökkentéssel történô élénkítését dollár árfolyamát továbbra Profit before income taxindította el az Egyesült Államokban, ami a 11,510 7,138 is erôteljesen befolyásolja és az amerikai valuta folytatódó leértékelôdését eredményezte. 2007ben a meghatározó árfolyam alakulás a dollár gyengülése volt a fontosabb valutákkal(1,370) szemben Taxation (1,953) (az euróhoz képest mintegy 15%), az árfolyam- és kamatvolatilitás növekedése miatt pedig a Net profit for the year 9,557 5,768 kockázatok is nehezebben kalkulálhatóvá váltak. Emellett az energiahordozók, nyersanyagok és mezôgazdasági termékek árának jelentôs emelkedése mind költségoldalról, mind pedig az inflációs veszélyek erôsödése révén 2007-ben gátolta a nemzetközi folyamatok kedvezô irányú változását. Mindezek hatására 2008-ban a világgazdasági növekedési ütem csökkenésére lehet számítani, s egyre nagyobb annak a veszélye, hogy az alacsony gazdasági növekedés hosszabb távon is viszonylag magas inflációval összekapcsolódva stagflációs jellegû helyzet – bár közgazdasági



20

21

[

]

Equity differences between Hungarian Accounting Standards and IFRS

Equity Net profit 31.12.2007 for the year 2008

Statutory reserves

Profit reserve

Valuation reserve

Equity 31.12.2008

Data in HUF million Hungarian annual report

130,541

5,707

634

0

0

136,882

Reclassification of general risk provision

1,022

0

(620)

0

0

402

General risk provision

0

(620)

0

620

0

0

General reserve

0

634

0

(634)

0

0

Revaluation of financial instruments

(189)

(125)

0

0

204

(110)

Deferred tax

(120)

172

0

0

0

52

131,254

5,768

14

(14)

204

137,226

International annual financial statement

[

1. MFB Hungarian Development Bank Private Limited Company

]

Company name: MFB Hungarian Development Bank Private Limited Company (MFB Zrt.) Registered office: 1051 Budapest, Nádor u. 31. Date of foundation: 1 December 1991 Type of company: Registered company limited by shares Owner: Hungarian State (100%) Shareholders' rights: Exercised by Minister of National Development and Economy Chief Executive Officers: Dr. János Erôs Sándor Czirják Number/nominal value of shares: Value of registered ordinary shares: HUF 87,570,000,000 comprising 87,570 ordinary shares each with a nominal value of HUF 1,000,000 Scope of activity: TEÁOR 64.19 Other monetary activity TEÁOR 64.91 Financial leasing TEÁOR 64.99 Other financial activities not classified elsewhere 01-10-041712 Registration number: Banking Supervisory licence: 32/1993. Money and Capital Market Supervisory Authority licence: Website:

973/1997/F www.mfb.hu

1.1. Legal status The MFB Hungarian Development Bank Private Limited Company (hereinafter referred to as: MFB or the Bank) is a specialised credit institution, a private limited company. The legal status, tasks and activities of the Bank are currently governed by Act XX of 2001 as amended on the Hungarian Development Bank (MFB Act), the provisions of the Deed of Foundation and the strategy approved by the Hungarian government and the owner.

1.2. Legislative amendments, audits by state bodies in 2008 Legislative amendments influencing the Bank's operations in 2008: The Government Decree on the cooperation agreement signed between the Government of the Republic of Hungary and the Government of the Russian Federation regarding the construction of gas pipelines for the transit of natural gas across the territory of the Republic of Hungary has resulted in a new task for MFB: MFB will have an equal share in the company to be established for the purposes of financing and implementing the project (construction, operation) together with Open Joint Stock Company "Gazprom" (Russian Federation). This requires an amendment to the MFB Act in 2009.



22

23 23

1.4. MFB international relations, memberships The changes affecting the loan programmes of MFB are contained in Government Decree 139/2008 (V.16.) on the interest subsidies for derogation projects. The loan programmes were amended in accordance with the Government Decree. Based on the 2008 amendment to the MFB Act and to reduce market inadequacies, MFB may participate in the financing of long-term working capital loans and credits to business entities and municipalities based on the Government resolution. These financing schemes are primarily designed to provide funding to market players carrying out production activities who are otherwise unable to gain access to funding due to inadequacies on the market.

• European Association of Public Banks (EAPB) – Member of the Association of EU banks in public ownership since November 2002; • Club of the Institutions in the European Union Specialising in Long-Term Credit (ISLTC) – Associate member from April 2003, full member since EU accession on 1 May 2004; • European Investment Fund (EIF) – Since 9 July 2003 MFB has held 5 shares as a member organisation;

To strengthen integration between primary producers and the processing industry MFB extended a loan of HUF 605 million to Agrár-Reorg Kft. in 2008. For the task set forth in the 2008 Budget Act the Hungarian State provided a payment guarantee of HUF 400 billion.

• Network of European Financial Institutions for Small and Medium Sized Enterprises (NEFI) – Observer from June 2003, full member since EU accession on 1 May 2004;

To secure the Hungarian supply of nitrogen fertiliser the Government also provided an 80% payment guarantee for the 4-year loan and related charges of up to HUF 10 billion to be drawn by Nitrogénmûvek Zrt. from MFB.

• International Capital Market Association (ICMA) – The International Securities Market Association (ISMA) has been known as the ICMA since 2005. Full member since 28 August 2003;

Execution of other Government Decrees in 2008:

• International Chamber of Commerce (ICC) – Member since 2003;

• • •

Based on government resolutions the Bank elaborated and introduced the New Hungary Agricultural Working Capital Loan Programme; since 15 September 2008 the interest rate has been BUBOR-based. The preparations for introducing the MFB New Hungary Agricultural Working Capital Loan Programme ensued in 2008 and the Loan Programme was launched at the beginning of 2009. In 2008 the Bank elaborated and introduced the New Hungary Producers’ Sales Organisation Working Capital Loan Programme.

• Banking Association for Central and Eastern Europe (BACEE) – MFB has been a Regular Member since 12 February 2008; • European Development Finance Institutions (EDFI) – Member since 2008; • Loan Market Association (LMA) – Member since 2008.

1.3. Correspondent banks of MFB abroad

1.5. MFB membership in local organisations

• • • • • • •

ABN-AMRO Bank NV JP Morgan Chase Commerzbank AG JP Morgan AG Mizuho Corporate Bank Ltd. Royal Bank of Scotland Plc. Zürcher Kantonalbank

New York, USA New York, USA Frankfurt, Germany Frankfurt, Germany Tokyo, Japan London, United Kingdom Zurich, Switzerland

• Rural Credit Guarantee Foundation (AVHA) • Hungarian Association of Internal Auditors • Budapest Chamber of Trade and Industry • Federation of Management and Scientific Associations • Garantiqa Credit Guarantee Co. Ltd. • Hungarian Banking Association • Hungarian Forex Association • National Deposit Insurance Fund (OBA)



24

25 25

[

1.6. Rating MFB has had credit ratings assigned by Moody’s Investors Service international ratings agency since 19 May 2003. The Bank's credit rating of Aa1 on its foreign currency denominated senior, unsecured debt remained unchanged in 2008. On 7 November 2008 Moody’s Investor Service downgraded the Hungarian Government bond rating and the deposit ceiling from A2 to A3 with a negative outlook. As a result of this change the long-term bank deposit rating of MFB was downgraded from A2 to A3 on 26 November 2008, while the short-term bank deposit rating was modified from P1 to P2, also with a negative outlook.

2. Developments in Business Activities

]

2.1. Key objectives of 2008 business plan The Bank's main business endeavours can be summarised as follows: • • • • • • • • •

Continued implementation of the "For a Successful Hungary" Municipality Infrastructure Development Loan Programme; Strengthening the target group's competitiveness with the New Hungary Enterprise Development Loan Programme – especially the Micro-Credit Plus and the Small Business Loan Programme – in view of Hungarian requirements and EU regulations; Introduction of new programmes meeting the needs of borrowers, broadening scope of eligible beneficiaries; Financing of projects with individual loans; Restructuring of equity financing activity, switch to indirect financing through equity funds, mostly in majority private ownership; Supervision and profitable operation of MFB Banking Group; Reliable re-financing of maturing funds, raising additional funds in line with expansion of activities; Cost-efficient operation, keeping operating costs steady in real terms; Adopting new Basel II capital adequacy directive in practice.

Activities of the Bank in 2008: • Under the active loan programmes the Bank extended loans of almost HUF 124 billion, of which HUF 120 billion was disbursed through commercial banks. • The new disbursement of direct loans exceeded HUF 127 billion. • In 2008 the Bank raised external funds of EUR 845 million to replace maturing funds and to finance its activities. • The Bank announced new loan programmes to finance developments in the municipal and SME sectors, whilst also restructuring the Panel Plus and Residential Energy Conservation Loan Programme. • New investment is carried out by an equity fund owned jointly by MFB Invest Plc. and a Japanese investor, which is in majority in private ownership; the necessary contracts were signed in 2008. • The Bank sold part of its development purpose equity investments to external investors and the remainder to the MFB Development Capital Fund (MFB FTA). • The MFB Banking Group was also restructured: by a capital increase at MAG Ltd., KIKSZ Transport Development Ltd. was established, which acts as an intermediary for aid related to transport.



26

27 27

2.2. Lending activities Breakdown of MFB loan portfolio by loan programmes and own loans The trend whereby the preferential refinancing provided through credit institutions to facilitate the investment and development objectives of the various sectors of the economy strengthened in the business policy and practices of MFB in 2008. Additionally, the volume of direct lending also increased, reinforcing the ratio of investment project loans. From the second half of 2008 when the first signs of the international financial crisis appeared, and with a view for compensation for the reduced fund supply of commercial banks, the Bank introduced a new element to its lending practices in the form of long-term, refinanced working capital loans. Measures were taken in lending procedures to enhance cooperation – primarily in the programmes with credit institutions that have been underway for 5-7 years – which improved the opportunities of using development and working capital loans together in certain sectors. In order to mitigate the impacts of the crisis on the business sector, work started on constructing a broad network of agents to promote the access of micro and small enterprises to loans, with the aim of enabling companies to draw even small development loans directly from the Bank. Furthermore, by restructuring the loan programmes the Bank made development and investment loans available for those applying for European Union funding, as a way of increasing the level of own funds. The purpose of the changes made to the Bank's lending practices in 2008 was to mitigate the effects of the economic crisis in the financing of corporate, municipal and residential energy conservation developments in 2009. The business strategy was drawn up accordingly.

31.12.2007

31.12.2008

36%

54% 39% 48% 39% 48%

36%

54%

10% 10% 13%

13%

48%

Project financing

39%

Active loan programmes

48%

39% 13%

Project financing

Active loan programmes Closed loan programmes

13%

54% 54%

Project financing Project financing

36% 36%

Active loan Active loanprogrammes programmes

10%

10%

Closed loan programmes



Substantial growth was also observed in the active loan programmes as well as in the volume of loans placed directly, i.e. not within the framework of any programme. In spite of the considerable volume of loans placed within the programmes, the ratio of project loans increased compared to the end of the previous year as a result of financing several major projects.

Sectoral breakdown of total loans placed as of 31 December 2008

2.2.1. Total lending portfolio In 2008 the Bank increased its loan portfolio, disbursing substantial amounts of refinanced and direct loans. The volume of repayments is growing in the individual loan programmes as grace periods expire in many cases, while unscheduled repayments are also increasing.

5.3%

3.7% 1.9%

35.2%

5.5% 6.1%

12.8%

14.0% 35.2%

Property development, economic services

15.5%

Municipalities

14.0%

Industry

12.8%

Agriculture

15.5% 6.1%

Trade

5.5%

Construction

5.3%

Other services

3.7%

Transport, storage, post, telecoms

1.9%

Accommodation, catering



28

29 29

Companies in the service sector continue to dominate among the various sectors, which is the result of relatively few, concentrated transactions. Industry accounts for 14%. The agriculture ratio is high, sitting at 12.8%, despite the continuous repayments made by family farms; this is due to the substantial volume of loans placed in the new and successful agriculture development and working capital loan programmes.

[

]


63% of the total loans were used to finance the small and medium-sized business sector. Many of the ultimate beneficiaries of loans extended to financial intermediaries classified as large companies fall into this sector, and therefore the ratio of development loans financing the SME sector is in reality much kedvezôtlenebbre fordulhigher. a szigorodó hitelfeltételek és a romló likviditás következtében. A

pénzpiaci problémák tovaterjedése, s az ahhoz kapcsolódó reálgazdasági lassulás egyre bizto-

2.2.2. Programme loans sabbnak tûnik. E hatás mérséklésére irányul a különbözô likviditásnövelô és gazdaságélénkítô konstrukciók kialakítása egyes országokban, illetve nemzetközi összefogásban. In line with the objectives set forth in the business strategy, the 2008 business operations of MFB comprise long-term loan programmes offering funding under preferential interest conditions to support the financing Negyedéves requirements GDP of corporate, municipal and residential developnövekedés (elôzôasévpriorities azonos from negyedévéhez képest, %) ments that are considered the perspective of investment in the national % economy. The MFB loan programmes are available to practically every single participant in 8 7 the economy. Loans under preferential interest conditions are available for municipalities, businesses and6in case of energy conservation investment for private individuals as well.

Regional breakdown of total loans placed as of 31 December 2008 % 38.7 40 35 30 25

4

17.1

20

2.2

15

9.1

10

8.5 6.5

4.3

2

11.5

1.6 1.3

4.3

5

0

2.6

-0.1

1.5 1.6 0.4

1.4 1.4 0.6

Budapest

Central Hungary

Northern Hungary

Northern Great Plain

Southern Great Plain

Western Central Southern Transdanubia Transdanubia Transdanubia

Approximately 50% of the loans were disbursed by the Bank to companies registered in Budapest and Central Hungary. The concentration can be explained by the larger amounts of loans extended to businesses registered in Budapest. (Note: Budapest is stated separately at all the regional figures.)

Breakdown of total loans placed as of 31 December 2008 4% 15%

63%

18%

-4 2007 Loan programmes total 2007 Q1 Q2

of which: Panel Plus

SME sector

18%

Large corporations

15% 4%

Municipalities Other

0.6 0.5

2007 6,509 2007 Q3 Q4

0.8

0.7 0.6 -0.1

0.3

0.8

Applications -0.6 approved

no.

0.3 -0.9 -1.2

HUF million-4.1 HUF million

2008 2008 2008 433,048 5,9242008364,010 Q2 Q3 Q4 Q1

Poland 263,600 Slovenia 504 5,013

4,134

Loan amount per client 61

3,630

Slovakia 202,177

56

401

3,981

10


1,682

144,620

1,633

139,406

85

255

14,259

248

13,728

55

A gazdasági növekedés fékezôdése a reálgazdasági folyamatok jelentôs kamatcsökkentéssel történô élénkítését indította el az Egyesült Államokban, ami a dollár árfolyamát továbbra is New Hungary Agriculture Development Loan Programme 70 folytatódó 4,689leértékelôdését 56 2,504 45 erôteljesen befolyásolja és az amerikai valuta eredményezte. 2007ben a meghatározó árfolyam alakulás a dollár gyengülése volt a fontosabb valutákkal szemben Neweuróhoz Hungaryképest Agricultural Working (az mintegy 15%), az árfolyam- és kamatvolatilitás növekedése miatt pedig a 118 13,256 116 13,066 113 Capital Loan Programme kockázatok is nehezebben kalkulálhatóvá váltak. Emellett az energiahordozók, nyersanyagok és mezôgazdasági termékek árának jelentôs emelkedése mind költségoldalról, mind pedig az Cereals Working Capital Loan Programme 3,990 3,990 399 10 10 inflációs veszélyek erôsödése révén 2007-ben gátolta a nemzetközi folyamatok kedvezô irányú változását. Other loan programmes

63%

1

0.9

-3.4 HUF million

no.

New Hungary Enterprise Development Czech Republic Loan Programme Hungary of which: Micro-Credit Plus "For a Successful Hungary" Municipality Infrastructure Development Loan Programme

1.2 0.6 0.4

Applications received

-2 Programmes/types

0

2.1

2.1

1.9 1.9 programmes 1.8 1.9 December 2 Active as of 31 2008 1.7 1.5 loan

495

2,893

479

2,867

6

Mindezek hatására 2008-ban a világgazdasági növekedési ütem csökkenésére lehet számítani, s egyre nagyobb annak a veszélye, hogy az alacsony gazdasági növekedés hosszabb távon is The loans are primarily offered under refinancing schemes, but direct MFB schemes created for viszonylag magas inflációval összekapcsolódva stagflációs jellegû helyzet – bár közgazdasági micro and small businesses make MFB products available to a wider section of the economy.



30

31 31

Sectoral breakdown of loans placed under active programmes as of 31 December 2008 3.2%

2.6%

2.5%

4.1%

6.5%

13.2%

17.0% 46.3%

Municipalities

4.6%

Accommodation. catering

17.0%

Trade

4.1%

Other services

13.2%

Industry

3.2%

Construction

Agriculture

2.6%


2.5%


The Bank has refinancing agreements with roughly 40 credit institutions, including more than 20 savings cooperatives. The 56 micro and small enterprise agents – which not only include savings cooperatives and credit cooperatives, but also the Hungarian Post Plc., Regional Development Holding Ltd. and related companies as well as MAG Ltd. and representative offices – enable the products of the Bank to be available not just in regional centres but around the entire country to a wide range of potential beneficiaries.

Regional breakdown of loans placed under active programmes as of 31 December 2008 %

12.6

Sectoral breakdown of Enterprise Development Loan Programme as of 31 December 2008 4.9%

4.1%

0.3% 36.3%

5.9%

9.9%

10.7%

27.9%

13.1

13.4 12.1

14 12

]

The development loan options provided for the enterprise sector cover every single segment of the Hungarian economy, with a separate programme supporting the development needs of the agricultural sector. As the main loan programme of the Bank, the New Hungary Enterprise Development Loan Programme provides financial assistance to support the investment and development goals of companies in the SME sector. This loan programme was extended in 2008 with a new sub-programme referred to as the New Hungary Small and Medium-sized Enterprise Loan Programme, which thanks to equal funding from the EU and MFB constitutes another preferential loan opportunity for SMEs investing outside the Central Hungary region. Within the HUF 310 billion earmarked for the New Hungary Enterprise Development Loan Programme, the volume of approved loans rose by approximately 15% in 2008. The average loan amount applied for as of 31 December 2008 was HUF 55.7 million, which constitutes a growth of 4.5% compared to the 2007 figures.

16.1

18 16

New Hungary Enterprise Development Loan Programme

46.3%

4.6%

6.5%

[

12.3 10.6

9.8

10

36.3%

Trade

5.9%

Construction

27.9%

Industry

4.9%


10.7%

Other services (municipalities, health-care, other services) Accommodation, catering

4.1%


0.3%

Agriculture

9.9%

8 6 4

Looking at the sectoral breakdown of the Enterprise Development Loan Programme compared to

2

2007, the highest growth of 3.1% was recorded for accommodation and catering, but the number of

0 Budapest

Central Hungary

Northern Hungary




loans approved in the 'other' category also rose 2.1%. The greatest decline of 2.5% was registered for property development, economic services and construction. 8.8% of the enterprises use the maximum term of 15 years, with the most common terms being between 5 and 10 years.

MFB

ANNUAL

32

REPORT

MFB

ANNUAL

33

REPORT

[ Regional breakdown of Enterprise Development Loan Programme as of 31 December 2008 %

17.3

18

15.7

15.0

16 12.8

14

11.6

10.8

12

8,7

8.1

10 8 6 4

]

"For a Successful Hungary" Az MFB ZRT. mûködési környezete Municipality Infrastructure Development Loan Programme

One of the priorities of the Bank's business strategy is to support the infrastructure developkedvezôtlenebbre fordul a szigorodó hitelfeltételek és a romló likviditás következtében. A ment objectives of municipalities. The "For a Successful Hungary" Municipality Infrastructure pénzpiaci problémák tovaterjedése, s az ahhoz kapcsolódó reálgazdasági lassulás egyre biztoDevelopment Loan Programme, which has been in operation since November 2004, is the loan sabbnak tûnik. E hatás mérséklésére irányul a különbözô likviditásnövelô és gazdaságélénkítô scheme exhibiting the most dynamic growth at MFB in terms of loan volume. The Bank believes konstrukciók kialakítása egyes országokban, illetve nemzetközi összefogásban. that the 20-25 year maturity loans bearing interest of 5-7% depending on the loan objectives are currently the best HUF products on the market. Keen competition has emerged between financing banks, which could push loan costs down further. Under this programme more than Negyedéves GDP növekedés HUF 139 billion was approved the end negyedévéhez of December 2008 based (elôzô évbyazonos képest, %)on 1,633 applications. %

Infrastructure 8 development investments can7 be financed from any of the nine loan objectives in the Loan Programme. The general investment objectives constitute the broadest scope, thus 6 almost half of the applications are related to these objectives. More specifically, the most applications received concerned the construction of roads and the renovation of municipal facilities. 4

2.6 2.1 2.1 1.9 1.9 1.8 1.9 2 1.5 Adjusting to2 the1.6development opportunities permitted by the New Hungary Development Plan, 1 0.9 0.8 1.2 1.5 1.6 1.4 1.4 0.8 0.3 1.3 and in this respect to the financing demands generated by the volume of municipal invest0.7rising 0.6 0.6 0.6 0.4 0.6 0.5 0.4 0 0.3 -0.9 ments, financing is-0.1available under a separate loan objective -0.1 in this loan programme for own -0.6 -1.2 2.2

2 0 Budapest

Central Hungary

Northern Hungary




Looking at a county breakdown of the applications, 32.3% of the applied loan amount came from Budapest and Pest county, with Gyôr-Moson-Sopron county following Hajdú-Bihar county in second place. Of the 12 primary loan objectives, the main ones are investments related to modernising technology, developing production infrastructure and commerce. In a similar manner, the Bank responded positively to market trends by restructuring the loan programmes to expand the opportunities for micro and small enterprises to draw small development loans. In this context the New Hungary Small Enterprise Loan was introduced alongside the Micro-Credit Plus Programme. The direct financing schemes available to micro and small enterprises are offered by the Bank through agent networks.

1.7

-2 funds required for tenders announced in the operational programmes of the New Hungary -3.4 Development Plan and in the New Hungary Rural Development Programme. -4.1 Consequently, -4 2007 2007 2007 2008 2008 2008 2007 2008 more projects implemented with tender funding are being financed. The conditions enable Q1 Q2 Q3 Q2 Q3 Q4 Q1 Q4 projects involving EU funding and an MFB loan to be implemented without the need for own Poland and a 4-year commitment Slovakia funds, with terms of 25 Czech years,Republic a 5-year grace period period. Hungary

Slovenia

A new factor from 2008 is that municipalities are eligible for subsidised interest even during Source: Eurostat data under the Environment and Energy the grace period in the case of derogation projects financed Operational Programme.

Regional breakdown of the "For a Successful Hungary"

A gazdasági növekedés fékezôdése a reálgazdasági folyamatok jelentôs kamatcsökkentéssel Municipality Infrastructure Development Loan Programme történô élénkítését indította el az Egyesült Államokban, ami a dollár árfolyamát továbbra is as of 31 December 2008 % erôteljesen befolyásolja és az amerikai valuta folytatódó leértékelôdését eredményezte. 200715.7

The Enterprise Development Loan Programme finances a gross sum of almost HUF 700 billion in investments and developments, contributing to the growth of the national and local economy.

ben a meghatározó árfolyam alakulás a dollár gyengülése volt a fontosabb valutákkal szemben 14.0 13.0 (az euróhoz képest 12.7 mintegy 15%), az árfolyamés kamatvolatilitás növekedése miatt pedig a 14 12.0 11.9 kockázatok is nehezebben kalkulálhatóvá váltak. Emellett az 11.1 energiahordozók, nyersanyagok 12 9.6 és mezôgazdasági termékek árának jelentôs emelkedése mind költségoldalról, mind pedig az 10 inflációs veszélyek erôsödése révén 2007-ben gátolta a nemzetközi folyamatok kedvezô irányú változását. 8 16

6

Mindezek hatására 2008-ban a világgazdasági növekedési ütem csökkenésére lehet számítani, 4 s egyre nagyobb annak a veszélye, hogy az alacsony gazdasági növekedés hosszabb távon is 2 viszonylag magas inflációval összekapcsolódva stagflációs jellegû helyzet – bár közgazdasági 0 Budapest

Central Hungary

Northern Hungary






34

35

[

New Hungary Agriculture Development Loan Programme

]

By the end of December 2008 a total of 371 applications had been approved worth HUF 17.5 billion in the Agriculture Development Loan Programme (initially "For a Successful Hungary", now New Hungary) designed for small and medium-sized enterprises involved in agricultural production as well as the sale and processing of agricultural produce. 40% of the investments targeted a reduction in production costs, while 39% of the applications were submitted with a view to raising production efficiency. The average loan amount for the two programmes was HUF 47 million, while the average term was 10 years. In terms of loan amounts the counties traditionally strong in agriculture top the list, i.e. Fejér, Hajdú-Bihar, Békés, Bács-Kiskun, Somogy and Csongrád counties, while based on the number of applications the counties of Baranya and Békés lead the way. The conditions of the programme did not change in 2008 and it functioned in accordance with EU assistance regulations. The borrowers are small and medium-sized enterprises involved in agricultural production. Young farmers can apply for loans of up to HUF 1 billion with terms of up to 15 years under a separate loan objective to develop their agricultural production activities. The interest conditions are identical to those offered to other companies outside the sector, with the annual loan interest rate depending on the EURIBOR, but averaging at 6-8%. The "Agrárforrás" Loan is a separate scheme within the loan programme framework, which enables the loans to function as long-term external funding, requiring the repayment of the principal only after the 5-7 year grace period, instead of after 2 years. To enable preferential loans to be used by the agricultural sector as well for the tenders announced under the New Hungary Development Plan, MFB introduced a loan providing the necessary own funds for tenders advertised under the New Hungary Rural Development Plan.

Other agricultural programmes

]


This loan programme is ideal for those who have already commenced or are planning an investment and who also require external funding to keep the business running. Under the loan programme a total of HUF 13 billion was approved by the end of 2008 based on 116 applications. The average loan amount was HUF 113 million, while the average term was 4.5 years. In terms kedvezôtlenebbre fordul a szigorodó hitelfeltételek és a romló likviditás következtében. A of the amount and number of loans, the most interest was expressed in Hajdú-Bihar county. pénzpiaci problémák tovaterjedése, s az ahhoz kapcsolódó reálgazdasági lassulás egyre biztoThe financing options for the agricultural sector have been expanded with the MFB Cereals Loan sabbnak tûnik. E hatás mérséklésére irányul a különbözô likviditásnövelô és gazdaságélénkítô Programme and the Producers’ Sales Organisation Working Capital Loan Programme. konstrukciók kialakítása egyes országokban, illetve nemzetközi összefogásban.

The development loans available within the framework of the loan programmes – complemented with the new working capital financing options designed to mitigate the impacts of the Negyedéves GDP növekedés international financial and economic crisis negyedévéhez – enabled MFB képest, to make %) an efficient contribution to (elôzô év azonos % the government's crisis management activities by the end of 2008. This still involves working 8 7 together with the commercial banks and savings cooperatives. Consequently the Bank is able to maintain its6 long-term development and investment loan programmes, ensuring that businesses and municipalities have the financial background required to co-finance EU development funding. 4 At the same time,2.2this also permits2.6companies undertaking developments and 2.1 investments to 2.1 1.9 1.8 1.9 2 1.7 1.5 1.9 2 1.6 from continue benefiting the preferential conditions of0.9 the loan1 programmes at their own banks 0.8 1.2 1.5 1.6 1.4 1.4 0.8 0.3 1.3 – throughout the entire Hungarian banking sector. 0.7 0.6 0.6 0.6 0.4 0.6 0.5 0.4 0

-0.1

-0.1

-2

0.3

-0.6

-3.4

-4

2007 Q1

2007 Q2

2007 Q3

2007 Q4

2008 Q1

Czech Republic

Poland

Hungary

Slovenia

-0.9

-1.2 -4.1

2008 Q2

2008 Q3

2008 Q4

Slovakia


New loan programmes were introduced from the second half of 2008 to mitigate the negative impacts of the financial crisis on real economic processes; these were designed to make medium-term working capital financing available to support and maintain the competitiveness of businesses willing to undertake investments. In response to market trends, loan programmes appeared in the Bank's business policy and business strategy that meant working capital loans not linked to investments are also available for companies in sectors of the economy experiencing rough times due to the market conditions. In March 2008 MFB launched the New Hungary Agricultural Working Capital Loan Programme with a total frame amount of HUF 20 billion. Under this programme agricultural enterprises are offered preferential-interest working capital loans with a view to improve the competitiveness of their agricultural production, first and foremost animal husbandry activities, and to produce good quality products.

MFB

[

ANNUAL

36

REPORT

A gazdasági növekedés fékezôdése a reálgazdasági folyamatok jelentôs kamatcsökkentéssel történô élénkítését indította el az Egyesült Államokban, ami a dollár árfolyamát továbbra is erôteljesen befolyásolja és az amerikai valuta folytatódó leértékelôdését eredményezte. 2007ben a meghatározó árfolyam alakulás a dollár gyengülése volt a fontosabb valutákkal szemben (az euróhoz képest mintegy 15%), az árfolyam- és kamatvolatilitás növekedése miatt pedig a kockázatok is nehezebben kalkulálhatóvá váltak. Emellett az energiahordozók, nyersanyagok és mezôgazdasági termékek árának jelentôs emelkedése mind költségoldalról, mind pedig az inflációs veszélyek erôsödése révén 2007-ben gátolta a nemzetközi folyamatok kedvezô irányú változását. Mindezek hatására 2008-ban a világgazdasági növekedési ütem csökkenésére lehet számítani, s egyre nagyobb annak a veszélye, hogy az alacsony gazdasági növekedés hosszabb távon is viszonylag magas inflációval összekapcsolódva stagflációs jellegû helyzet – bár közgazdasági


37 37

[

Residential energy conservation programmes

]

In accordance with its strategic objectives the Bank strengthened its endeavours in the residential energy conservation programmes in 2008. This was driven by the aim of providing households with the necessary development resources alongside the energy conservation tenders.

2.2.3. Direct loans The Bank also provided direct loans to finance individual company projects in 2008. The Bank disbursed more than HUF 127 billion in forint and foreign currency loans in 2008 outside the set loan programmes. Despite the adverse macroeconomic environment there are currently many project applications being assessed and pending approval that run into several billions of forints. In addition to financing the investments of the corporate sector the Bank is increasingly financing the funding needs of the Banking Group too.

The Panel Plus Loan Programme and the "For a Successful Hungary" Residential Energy Conservation Loan Programme provide funding for developments of residential communities that conserve energy. Natural persons can apply to the latter programme to help finance investments reducing energy consumption in their traditionally-built homes as well as for developments enabling the use of renewable energy resources.

Sectoral breakdown ofdirect loans as of 31 December 2008 3.0%

0.8%

0.5%

5.2%

Under the Panel Plus Loan Programme preferential-interest funds can be applied for financing developments saving energy in residential buildings constructed using industrialised technology. This programme not only enables residential communities – housing associations and multioccupational buildings – to supplement funds for modernisation and renovation projects but also enables municipalities to raise funds for tenders, which is unparalleled on the market. Renovations worth almost HUF 46 billion were realised with the help of the HUF 13.7 billion in funding approved. The loan programme has so far provided finance for the modernisation of around 55,000 flats, whereby 13% of the borrowers were residential communities and 87% were municipalities. Taking a regional perspective, the most loan applications were submitted in Fejér county (19%), Budapest and Csongrád county (11% each), and in Gyôr-Moson-Sopron, Somogy and Veszprém counties (8% each). In terms of loan amounts the greatest demand was in Zala and Csongrád counties, Budapest and Borsod-Abaúj-Zemplén county. In 2008 the conditions of the loan programme were altered in line with the new panel tender conditions. The purpose and amount of the loan changed in conformance with the tender conditions, and the maximum loan sum per flat rose to HUF 1.12 million. This scheme which is solely based on refinancing was introduced as a complementary funding option together with the tender to "raise household energy conservation and use of renewable energy". Participation in the tender ensures eligibility for the loan. Under the loan programme a total of HUF 550 million was approved by the end of 2008 based on 429 applications. The majority of the loan applications were submitted by private individuals, while only twelve applications came from residential communities. The majority of the loans targeted energy conservation investments, while applicants asked for HUF 151.3 million for investments seeking to replace traditional energy resources with renewable energy sources.

MFB

ANNUAL

38

REPORT

25.6%

7.4% 8.3%

12.3% 19.3% 17.6%

25.6%

Hungarian Export-Import Bank Plc. loan

19.3%

Student Loan Centre Plc. loan

17.6%

Industry

12.3%


8.3%

Construction

7.4%

Other services (municipalites, health-care, other services)

5.2%


3.0%

Agriculture

0.8%

Accomodation, catering

0.5%

Trade

Similarly to the previous year, of all the various sectors, companies in the services sector still dominate direct lending, totalling 57%, which is the result of relatively few but concentrated transactions (mainly programmes that fall under financial intermediation). The Bank participated in financing complex projects too in 2008 (e.g.: hotel-spas, hotel, shopping and leisure centres). Industry accounts for 17.6% of direct loans, which in turn is dominated by chemical, paper and mechanical engineering companies. Moreover, under market conditions and as part of a banking consortium MFB is participating in the financing of some new motorway sections as well. The Bank principally finances the agricultural sector through programmes, and outside the programmes it provides resources to finance mainly the development needs of agricultural undertakings.

MFB

ANNUAL

39

REPORT

2.4. Funding activities

Transportation and storage account for 5.2% of the MFB's direct loans portfolio, a figure dominated by the storage of agricultural products and projects for the transportation of goods by rail. The ratio of other services is 7.4%, most of which is loans extended to municipalities. The direct loans placed with municipalities are primarily used for renovating schools and developing municipal infrastructure. The Bank devotes close attention to realising projects targeting the use of renewable energy and environmental protection. 57% of the loans placed outside the programmes were extended by the Bank to the SME sector. The high proportion of loans provided to large companies is mainly derived from the significant size of financed projects. In terms of the number of transactions the number of loans extended to the small and medium-sized business sector accounted for 75% of the total number of direct loans.

Breakdown of loans placed directly, 3% outside set programmes by number of applications as of 31 December 2008 22%

36%

The Bank satisfied not only its own long-term funding needs but also those of Hungarian Export-Import Bank Limited Private Company, which is part of the MFB Banking Group. 57%

The Bank continued to strengthen strategic financing relations with national and international development institutions.

7% 22% 36%

57%

During 2008 MFB raised EUR 845 million external funds. The average weighted maturity of these funds was 2.52 years, while the all-in spread over EURIBOR was 23.04 basis points. Quarterly funding volumes evolved as follows: Q1: EUR 100 million, Q2: EUR 300 million, Q3: EUR 350 million, Q4: EUR 95 million.

75% 57%

75% 75%

SME SME sectorsector

22%

22%

Large corporations

57%

3%

Other

36%

3%

Thus adapting to the changed market circumstances MFB was still able to raise relatively inexpensive funding in the money and capital markets with shorter maturities in the first half of the year, but towards the end of the year the crisis in the financial markets meant that only institutional funds could be raised (i.e. funds from International Financial Institutions).

Breakdown of loans placed directly, 7% outside set programmes by loan amount as of 31 December 2008

3%

75%

The payment obligations of MFB derived from transactions carried out with the objective of raising funds with maturities longer than one year are secured by the state with unconditional repayment guarantees in accordance with Section 5 (1) a) of Act XX of 2001 on MFB. Section 36 (1) of Act CLXIX of 2007 on the 2008 State Budget of the Republic of Hungary set the overall limit for this repayment guarantee at HUF 1200 billion for 2008.

36%

Large corporations Other

7%

7%

SME sector SME sector

Large corporations

Large corporations Other

Breakdown of funds raised in 2008 by type of funding instruments

Other

14%

As part of its direct lending MFB also carries out lending activities linked to various loan programmes, which resulted in a loan volume of HUF 19.7 billion at the end of 2008 in relation to the loan programmes.

2.3.

15%

Development purpose equity investments

In 2008 MFB completed the reorganisation of its development equity investment activity and created a cost-efficient, single channel for the management of the Banking Group's development equity investments, which is more in line with the changed EU regulations and the Bank's strategic objectives. In accordance with the resolution of the Minister for National Development and Economy, who exercises the founder's rights over the Bank, MFB established the MFB Development Equity Fund (MFB FTA), which acquired the investments in the equity financing portfolio of the Bank and the Banking Group at a market price determined by an independent expert. The equity fund management is handled by Corvinus Kockázati Tôkealap-kezelô Zrt., a subsidiary of MFB Invest Plc.

MFB

ANNUAL

40

REPORT

71%

71%

Securitised loans

15%

Institutional loans

14%

Club loans


41 41

[

3. MFB Banking Group

]

MFB carried out the following funding transactions in 2008: During the year the Bank borrowed a total of EUR 600 million in form of securitised loans (Schuldschein) with 18-month and 2-year maturity. In previous years securitised loans have proved to be efficient instruments to raise funds. The transactions were arranged by German and Italian banks. In June the Bank signed a EUR 120 million club loan agreement with a consortium of leading international commercial banks. The loan has a term of 1 year and 1 day, which may be extended by the contracting parties on two occasions, each by a further 1 year and 1 day. As regards strategic institutional relations the Bank continued to draw down not yet utilised funds available under previously signed framework loan agreements. The importance of institutional funds – which are favourable in all respects anyway -- increased in the second half of the year. MFB drew down EUR 65 million under the EUR 200 million framework loan agreement signed with the Council of Europe Development Bank (CEB) in July 2006 for the partial refinancing of the "For a Successful Hungary" Municipality Infrastructure Development Loan Programme and the New Hungary Enterprise Development Loan Programme. A EUR 100 million credit facility was signed with the European Investment Bank (EIB) on 30 November 2006 for the partial refinancing of the "For a Successful Hungary" Municipality Infrastructure Development Loan Programme and the New Hungary Enterprise Development Loan Programme, from which the Bank drew down EUR 50 million during the year. MFB has a EUR 25 million credit facility agreement with Nordic Investment Bank (NIB) too, signed on 15 February 2005. This facility can be used to finance projects where a company in one of the NIB member states has a direct or indirect business interest, and/or to finance environmental protection projects. MFB drew the sum of EUR 10 million from the facility.

By means of the banking group strategy coordinated by MFB, the MFB Banking Group members provide the full range of financial services to their clients. Banking Group

Financial Subsidiaries

Aid intermediation subsidiaries

Hungarian Export Import Bank Limited Private Company (74.95%)

MAG − Hungarian Economic Development Centre Ltd. (100%)

Hungarian Export Credit Insurance Pte Ltd. (74.94%)

Venture Finance Hungary Private Limited Company (100% MAG Ltd. owned)

Hungarian Claim Work-Out Limited Private Company (100%)

KIKSZ Transport Development Ltd. (100% MAG Ltd. owned)

Supplier Invest Private Company Limited by Shares (100%)

Hungarian Pole Programme Office (100% MAG Ltd. owned)

MFB Development Capital Fund (100%)

Corvinus First Innovation Venture Capital Fund (100%)

MFB Invest Investment and Asset Management Private Limited Company (100%) CKTA − Corvinus Venture Capital Fund Manager Private Limited Company (100% MFB Invest owned)

Key changes in the Banking Group in 2008 • The companies in the MFB Banking Group engaged in development equity financing sold the investments in their portfolio to the MFB Development Capital Fund (MFB FTA) established by MFB. • MFB made an in-kind contribution into MAG – Hungarian Economic Development Centre Ltd. of the shares in Venture Finance Hungary Plc., increasing the company's subscribed capital by around HUF 2.3 billion. • MFB increased the subscribed capital of MAG Ltd. by a further HUF 350 million so that the company could set up KIKSZ Transport Development Ltd., an organisation acting as an aid intermediary for transport development projects. • In line with the strategic goals of MFB, the Bank authorised MFB Invest Plc. to participate in organising and establishing the venture capital fund with the majority ownership of international investors.



42

43 43

[


Strategic companies in the MFB Banking Group

]

Magyar Export-Import Bank Zrt. (EXIMBANK – Hungarian Export Import Bank Limited Private Company) and Magyar Exporthitel Biztosító (MEHIB – Az MFB Zrt. tevékenységét meghatározó nemzetközi gazdasági és hazaiZrt. makrogazdasági Hungarian ExportazCredit Insurance Pte.kevésbé Ltd.) egyértelmûen stabil és kedvezô jellegûek feltételek 2007-ben elôzô évekhez képest voltak. A tágabb értelemben vett mûködési környezetünket több világgazdasági bizonytalansáEXIMBANK and MEHIB are gazdaság responsiblemakrogazdasági for financing activities that promote the internationaligi tényezô, illetve a magyar stabilizációs folyamataival összefüggô sation and enhance the competitiveness of Hungarian enterprises. To this end they have elaboviszonylag kedvezôtlen növekedési folyamatok határozták meg. Összességében a nemzetközi rated a broad range of kapcsolódó products which are deployed flexibly egy for their growing base of clients. gazdaság fejlôdéséhez kockázatok növekedtek, esetleges világgazdasági korTheir activities include export loans, loan insurance, development aid/loans, development policy szakváltás több jele is befolyásolta a nemzetközi pénzpiaci, strukturális és növekedési folyamacommitments andgazdaság any and teljesítménye all related activities as export guarantees, discounting, tokat, a magyar pedig –such részben a belsôloan stabilizációs kényszer, másconsulting and export loan insurance as well as political risk insurance. részt a külsô bizonytalanabb feltételek, illetve e két hatás összekapcsolódása miatt is – ellentmondásosan alakult. A világgazdaság 2007-ben viszonylag dinamikusan, de az elôzô évekhez With viewkevésbé to developing exports asnegyedévében part of the MFB Banking Group,a képestamár gyorsan, Hungarian 4,9%-kal nôtt, az évand utolsó azonban visszaesett EXIMBANK carries out taskserôsödô that improve the competitiveness local enterprises enable növekedés. Az év folyamán gazdasági bizonytalanságokof egyre inkább azt and jelzik, hogy them to expand around the world by directly or indirectly financing either the exporter or the a világgazdaság egyes fejlett, a magyar gazdaság számára strukturálisan meghatározó térsécustomer, pre-financing theirkialakulásának exports, assuming guarantees and discounting receivables. geiben megnôtt a stagfláció a veszélye, ami közvetlenül a hitelválság kumulatív, és a reálgazdaságot is erôteljesen érintô hatásainak, illetve a nyersanyag- és energiahordozók Principally by assuming political risks, MEHIB renders export loan conditions more attractive, soa árának drasztikus emelkedésének a következménye, de egyúttal a gazdasági korszakváltás, by improving the competitiveness of exporters in turn increases exports. strukturális átalakulások felgyorsulásának lehetôségét is magában hordozza. Magyarországon ez, a nemzetközi pénzpiaci és növekedési folyamatok strukturális, valamint a költség- és MFB Invest Befektetési és Vagyonkezelô Zrt. (MFB Investment and Asset keresleti viszonyok átrendezôdésével is járó folyamat a belsôINVEST növekedési feltételek változásával Management Plc.) együtt ugyancsak egy stagfláció közeli feltételrendszer kialakulásával fenyegethet. The focal point of theszámára MFB Invest strategy istérségekben managing the existing –development equity–investA magyar gazdaság meghatározó 2007-ben 2006-hoz képest némiment of MFB (MFB Development Capitalde Fund) on a contract as well(EU27) as the képp portfolio mérséklôdött a FTA gazdasági növekedés üteme, az Európai Unió basis, egészében direct stock and portfolio management of MFB Invest volt itself.a Agazdaság portfolio bôvülése, of HUF 3,384 2,9%, investment a közép-kelet-európai országokban pedig jóval gyorsabb mint million was sold in Az 2008 from the equitytagállamok investments(9ofország) MFB Invest. To satisfy equitygazdasági financing Magyarországon. új közép-európai általában 6% feletti demands in értek the SME Investnövekedésének participates in 2006-os the organisation establishment of növekedést el. Azsector USA MFB gazdasági fokozatosand mérséklôdése 2007 venture capital fundsmegállt, createds with the majority ownership of international This led az to elsô negyedévében a második és harmadik negyedévben újra investors. gyorsulni kezdett an agreement with Japanese equitynegyedévben investors to set a EUR 100 million aventure capital fund amerikai gazdaság. De az utolsó márupismét mutatkoztak gazdasági lassulás and company 2007-ben registered összességében in Hungary, majority-owned by the investors. jelei,fund és amanager GDP növekedése 2,2% volt. Japánban a gazdasági növekedés 2006 harmadik negyedévéig tartó lassulása után újabb konjunktúra kezdôdött, s némi Magyar Követeléskezelô Zrt. (MKK – Hungarian Claim Work-Out Limited Private megtorpanás után 2007 harmadik negyedévében ismét 2% feletti ütemben bôvült a gazdaság, Company.) az éves növekedés azonban itt is viszonylag alacsony, 1,9% volt. A növekedési kilátások 2007 negyedik negyedévében a fejlett országokban, elsôsorban az USA-ban romlottak, de ennek Hungarian Work-Out Limited Private Company is provides complementary servkedvezôtlenClaim következményei az év utolsó negyedében még csak mérsékelten financial jelentkeztek. ices, whichévekben are directly or indirectly related to the objectives of the közötti development loans of the Az elmúlt az USA növekedése és más országok fejlôdése kapcsolat gyengült, Bank. In addition to the továbbra work-out isof nagymértékben claims assumedfügg fromazthe Hungarian Taxamit andjelentôsen Financial azonban néhány ország USA importjától, Control Authority (APEH)lakossági accordingfogyasztás to relevantalakulása. legal provisions, the Egyesült company's strategic goal is befolyásol az amerikai Ezért az Államok gazdasáto the returnis from its existing portfolio. gi maximise zavarai továbbra nagymértékben befolyásolják a nemzetközi konjunktúra alakulását.

A further task is the work-out of claims derived from the significant increase in the direct and refinanced loans of MFB, as well as supporting development equity financing by purchasing and then selling receivables which arise. One of the strategic objectives of MKK’s future activities is creating a work-out management system linked to EU tenders. Magyar Gazdaságfejlesztési Központ Zrt. (MAG – Hungarian Economic Development Centre Ltd.) The basic mission of the company is to act as an intermediary for all the enterprise development aids financed from state and European Union funds. To this end, in 2008 it integrated several organisations cooperating and managing funds in the aid intermediation system, such as Magyar Vállalkozásfejlesztési Kht. (Hungarian Enterprise Development Public NonProfit Company) and IT Információs Társadalom és Informatikai Távközlési Szolgáltató Kht. (IT Information Society and IT Telecom Services Public Non-Profit Company), before combining them to create Pólus Programiroda Kht. (Pole Programme Office Public Non-Profit Company), KIKSZ Közlekedésfejlesztési Zrt. (KIKSZ Transport Development Plc.) and Magyar Vállalkozásfejlesztési Zrt. (Hungarian Enterprise Development Plc.). •

The core activity of the Pole Programme Office is implementing the Pole Programme, which as part of the government's economic development concept aims to enhance international competitiveness by supporting clusters with innovation and export potential as well as investments in pole towns that further develop business environment.

•

The establishment of KIKSZ Transport Development Ltd. was necessitated by prevailing EU legislation to ensure that the aid intermediation activity regarding transport that was previously handled in ministries would be carried out within a separate unit in the future. Its task is to coordinate the use of funds for transport infrastructure development, including the support of rail, road, water and air transportation projects.

•

Venture Finance Hungary Plc. was founded for the purpose of developing and operating repayable financial programmes during the 2007-2013 budget period designed to expand the financing opportunities of Hungarian small and medium-sized enterprises (Micro-Credit, Credit Guarantee, Venture Capital Programme). The majority of the funding for the financial programmes is provided by the European Union.

MFB FTA and CELIN venture capital funds They integrate the local and international development and venture capital financing activity of the MFB Banking Group in line with EU regulations.

Ugyancsak ezeket a hatásokat erôsítheti, ha a pénzügyi piacokon a helyzet még



44

45

[

4. Activities supporting the core tasks of the Bank

]

4.1. Communication At the beginning of 2008 the communication strategy could not have anticipated the everincreasing effects of the economic crisis, which would take hold in the second half of the year and present new challenges for bank communication. MFB was accorded a key role in the crisis management measures taken by the government, giving communication endeavours two main focal points: besides emphasising the existing "bridging" role between enterprises and the objectives of economic policy, the Bank's role as a "net" mitigating the impacts of the economic crisis intensified, drawing attention to the benefits of the new loan programmes. From the second half of the year MFB provided funds in form of direct and indirect loans that not only financed developments but also helped preserve jobs, retain market share and even prevent companies from going under. The regional "MFB Days 2008" events in the autumn brought together the experts behind development plans and development funding and those interested in the development funds offered by the MFB Banking Group. The management of MFB along with the management of EXIMBANK, MEHIB and MAG Ltd. that are part of the MFB Banking Group invited the development planners, those executing the plans at the local level, business-people and municipalities to the series of events held in the seven statistical regions and at the Balaton. The events proved that the communication of the Bank was able to adapt swiftly and flexibly to the changed macro and micro-economic circumstances. The roadshow and the outbreak of the crisis in Hungary coinciding provided an opportunity to provide up-to-date information directly to entrepreneurs and to decision-makers in municipalities. Direct links between the Bank and its target groups strengthened further in 2008. This was facilitated by the continuous media presence and the direct marketing campaign in the spring, during which the product brochures sent out enabled more than 11,000 entrepreneurs to learn about the wide range of ways for using the preferential-interest, long-term forint loans. The success of this endeavour was also demonstrated by the surge in interest through our Call Center.

4.2. Sponsorship Many children and young people (both healthy and disadvantaged) were given the opportunity to enjoy regular sports and participate in competitions in 2008 with the help of the Bank. Major support was given to acquiring equipment required for children's health-care too. The Bank assisted in issuing many cultural publications, non-fiction books, textbooks and specialist literature. MFB supported many professional conferences, publications and programmes enhancing and developing the business culture.

[

In addition to the support givenNegyedéves to various cultural music and theatre shows, books and GDP events, növekedés (elôzô azonosofnegyedévéhez %) film entitled "Hyppolit, CDs, the event arranged on theévoccasion re-mastering theképest, Hungarian % a lakáj" (Hyppolit, the Butler) should be highlighted, which is significant from both a cultural and 8 7 historical perspective. The work on re-mastering the original film was sponsored by MFB. 6

In 2008 the Bank received almost 300 applications for sponsorship, of which around half were 4 granted some form by 2.6 the Sponsoring Committee. When sponsoring events the 2.1 2.1 2.2 of support 1.9 1.8 1.9 2 1.7 1.5 1.9 2 1.6 Bank always stipulated that disadvantaged, disabled and children0.8could participate free of 0.9 sick 1 1.2 1.5 1.6 1.4 1.4 0.8 0.3 1.3 0.7 charge in the events. 0.6 0.6 0.6 0.4 0.6 0.5 0.4 0 0.3 -0.1

-0.1

-2

ZÉ RV TE .S ÉJ VE EL SE NJ TE ÉL SE N T É S

46 46

-0.9

-0.6

-3.4

-4

2007 Q1

2007 2007 Breakdown Q2 Q3 Czech Republic 6.0%

Hungary

2008 of2007 sponsorship Q4

Q1

5.0%Poland

-1.2 -4.1

2008 in 20082008 Q2 Q3 17.0%

2008 Q4

Slovakia

Slovenia

8.5%

Source: Eurostat data 14.0%

9.0%

A gazdasági növekedés fékezôdése a reálgazdasági folyamatok jelentôs kamatcsökkentéssel történô élénkítését 9.5% indította el az Egyesült Államokban, ami a dollár árfolyamát továbbra is erôteljesen befolyásolja és az amerikai valuta folytatódó leértékelôdését11.0% eredményezte. 200710.0% ben a meghatározó árfolyam alakulás a dollár gyengülése 10.0% volt a fontosabb valutákkal szemben (az euróhoz képest mintegy 15%), az árfolyam- és kamatvolatilitás növekedése miatt pedig a kockázatok is nehezebben kalkulálhatóvá váltak. Emellett az energiahordozók, nyersanyagok 9.5% 17.0% Cultivating traditions Theatre, film és mezôgazdasági termékek árának jelentôs emelkedése mindProfessional költségoldalról, mind pedig az 9.0% 14.0% Other, charitiable activities programmes and publications inflációs veszélyek erôsödése révén 2007-ben gátolta a8.5% nemzetközi folyamatok kedvezô irányú 11.0% Students, schools, education Fine arts változását. 6.0% Health-care Music, concerts 10.0% 10.0%

Sport

5.0%

Research

Mindezek hatására 2008-ban a világgazdasági növekedési ütem csökkenésére lehet számítani, s egyre nagyobb annak a veszélye, hogy az alacsony gazdasági növekedés hosszabb távon is viszonylag magas inflációval összekapcsolódva stagflációs jellegû helyzet – bár közgazdasági

Magyar Fejlesztési Bank Zrt. MFB

]


The objectives for 2008 also included supporting events and programmes for various academic materials. The "Junior Prima Award for Hungarian Science", co-founded by the Bank, was handed over for the second time. The 10 talented young people chosen were congratulated under fitting circumstances by guests at the gala evening for the events celebrating the 60th kedvezôtlenebbre fordul a szigorodó hitelfeltételek és a romló likviditás következtében. A anniversary of "Közgáz" Corvinus University. pénzpiaci problémák tovaterjedése, s az ahhoz kapcsolódó reálgazdasági lassulás egyre biztosabbnak tûnik. E hatás mérséklésére irányul a különbözô likviditásnövelô és gazdaságélénkítô A substantial amount was spent on "other charitable objectives", which principally helped the konstrukciók kialakítása egyes országokban, illetve nemzetközi összefogásban. initiatives of organisations helping disadvantaged children and families.


47 47

[

4.3. Scholarship programme MFB Hungarian Development Bank Private Limited Company is a committed supporter of talented young people with exceptional skills, which is why it launched the Mentor Scholarship Programme in 2006. The Mentor Scholarship Programme comprises two forms of support: the "Praktikum", which facilitates practical professional work, and the "Habilitas" scholarship that promotes theoretical professional activities. The Praktikum Scholarship assists students studying financial and economic subjects. Winning the scholarship means that in addition to the financial support students can also spend their professional training programme at MFB. At the end of 2008 the number of trainees at the Bank was 41. The Habilitas Programme provides support to young people who have exceptional talent in sciences, arts and literature. This talent is fostered to a great extent by the 12-month scholarship. In 2008 the Bank awarded Habilitas scholarships to 16 young people.

Development and Finance 25th anniversary edition

]

In 2002 and 2003 the Hungarian Development Bank launched a new applied economic sciences forum, the Fejlesztés és Finanszírozás/Development and Finance economic review, aligned to the new strategy of the Bank, radically changed in terms of philosophy and activity, and to the "bridging" role of the Bank between development policy and corporate decisions as well as between principles of development policy and everyday practice. The 25th anniversary edition was published in February 2009. The editorial policy of the publication has been shaped by an independent Editorial Board and the Strategic Advisory Council of the Hungarian Development Bank for more than six years. By publishing analyses that are in academic demand, the journal endeavours to promote efficient decisions on economic development at macro and micro level as well as the achievement of goals which determine the activity, endeavours and economic relations of a traditional development bank. By launching a journal and academic workshop focusing on applied economic analyses and studies, the Bank's aim was to provide readers with a publication that was capable of demonstrating the benefits of "blending" practical and theoretical approaches in a novel way. The journal is also closely tied in to the economic policy objectives set forth in MFB's strategy. In this context the special "bridging" role of the Bank strengthens the "mutual links" between decision-making at various levels and scientific analysis, thus helping the Bank in achieving its mission. By supporting the publication of Fejlesztés és Finanszírozás/Development and Finance the Bank created an academic periodical refereed both in Hungary and abroad, which in contrast to traditional banking publications is more suited to satisfying the needs and knowledge demands regarding development banking functions, the specific situation of the Hungarian economy and the changed economic conditions on account of globalisation. When the publication was launched, a review of other economic journals revealed that there are few professional publications in Hungary, which from an editorial perspective are capable of balancing theoretical and practical demands in an appropriate way. The challenge in this respect is that if the articles rely too much on theory they will only be of use to a narrow group of professional and academic readers, or vice-versa, the lack of an appropriate academic background makes the journal too practical, to the detriment of academic perfection.


MM F BF BZ RA TN. N ÉU VA EL S R J EE PL OE RN TT É S

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We wanted to avoid this conflict by preparing a publication, which amalgamated the special features of traditional "economic reviews" and "business reviews" and afforded space to both macroand micro-economic analyses. It is perhaps not going too far to say that this publication filled a gap. As a result of these endeavours our readers now receive an English and Hungarian economic journal every three months. In contrast to other Hungarian economic publications the English language version is not abbreviated, it is equal to the Hungarian one, but stands on its own as an independent English professional publication. It gives us a great deal of pleasure that the approach we adopted was soon replicated by others. In terms of topics and structure, Fejlesztés és Finanszírozás/Development and Finance aims to publish analyses on 21st century economic issues, which are in academic demand and can be used in practice, as well as discuss economic and social dilemmas. Another important aspect is for the journal to promote and encourage economic research as part of economic studies too, on the one hand by raising topics and on the other by providing an opportunity to publish academic works of chiefly PhD students. The journal also provides a forum for economic debates, such as evaluations of Hungarian monetary policy, which we were first to undertake and which triggered a major response among economists in Hungary. The English version of the publication goes by the name of the Quarterly Hungarian Economic Review and it attempts to promote Hungarian economic development and convergence indirectly by analysing general economic issues. Based on our circle of Hungarian and international readers, feedback, as well as the high professional standard of our authors we believe that our original objectives have largely been achieved and we still consider them to be acceptable and exemplary. In the 25 editions over the last six years we have published almost 300 articles written by nearly 200 Hungarian and foreign authors. In a short space of time the journal attracted a readership, which based on feedback comprises economic policymakers dealing with economic and social processes, corporate and banking managers and experts, researchers and university students, both in Hungary and abroad. The fact that readership of the English version now exceeds that of the Hungarian journal is a great achievement in our view. That Fejlesztés és Finanszírozás/Development and Finance soon became a refereed academic journal of the Hungarian Academy of Sciences, and it appeared with a high number of credit points as one of the required publications for successfully defending doctoral theses in many schools is probably another indicator of our success to date. The publication is also registered by databases collating foreign refereed academic articles (e.g. the Journal of Economics). Fejlesztés és Finanszírozás/Development and Finance endeavoured to create traditions from its very first edition, an approach which we attempt to demonstrate in the editorial principles, content and external appearance. Almost every edition of the journal has followed the same structure and contained the same number of analyses.

We regularly publish studies prepared by young researchers and PhD students after blind reviews. Periodically we publish studies on economic theory and the history of economics, which allow practical consequences to be drawn from theoretical analyses for current economic and development policy. In the "Views" column we set the stage for disputed opinions and principles that often differ strongly from the accepted line, we publish short, "review" articles that are more descriptive or informative but still qualify as academic papers, along with studies analysing macroeconomic trends. From the very beginning the aim of the journal was for the published studies to explore new aspects, which have arisen and taken root due to the advancement of globalisation and the acceleration of technological development, aspects, which are relevant from the perspective of economic decision-making. The new correlations require new types of development policy strategy, institutions and instruments. This complex transformation raises questions around the world as regards the effective cooperation between the state and the private sector and financing tasks. When determining the profile of the journal, another important objective was to evaluate issues related to the enlargement process of the European Union, since this also created an opportunity for economies in Central and Eastern Europe to secure their stable integration into the Western European economic system, if the chance was properly exploited. Exploring concepts, opportunities and thoughts on the Central and Eastern European enlargement of the European Union as well as on the strenghtening of the global economic role of the EU are equally at basic importance, both from the perspective of Hungarian convergence as well as the changes of the development policy. In our view, the journal has created an academic forum, which helps to make founded economic and financial decisions. This periodical is aimed at both Hungarian and foreign economic policymakers and business decision-makers, and naturally to all those who express interest in analyses and evaluating opinions on the given topics. Creating a separate website will promote this ‘workshop’ nature of the publication, where for example, articles that fit the profile of the journal but which cannot be printed due to a lack of space will be published in the "Background" section. With Fejlesztés és Finanszírozás/Development and Finance as an economic journal we would like to continue dealing with substantial issues that give food for thought to academics as well as local and international economic policymakers. We would like to do this at a level that enhances the professional and academic recognition achieved thus far, providing a fascinating and worthwhile read for those interested in economic and social trends.

Prof. Péter Gál Chairman of the Editorial Board

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Az MFB Zrt. tevékenységét meghatározó nemzetközi gazdasági és hazai makrogazdasági feltételek 2007-ben az elôzô évekhez képest kevésbé egyértelmûen stabil és kedvezô jellegûek voltak. A tágabb értelemben vett mûködési környezetünket több világgazdasági bizonytalansági tényezô, illetve a magyar gazdaság makrogazdasági stabilizációs folyamataival összefüggô viszonylag kedvezôtlen növekedési folyamatok határozták meg. Összességében a nemzetközi gazdaság fejlôdéséhez kapcsolódó kockázatok növekedtek, egy esetleges világgazdasági korszakváltás több jele is befolyásolta a nemzetközi pénzpiaci, strukturális és növekedési folyamatokat, a magyar gazdaság teljesítménye pedig – részben a belsô stabilizációs kényszer, másrészt a külsô bizonytalanabb feltételek, illetve e két hatás összekapcsolódása miatt is – ellentmondásosan alakult. A világgazdaság 2007-ben viszonylag dinamikusan, de az elôzô évekhez képest már kevésbé gyorsan, 4,9%-kal nôtt, az év utolsó negyedévében azonban visszaesett a növekedés. Az év folyamán erôsödô gazdasági bizonytalanságok egyre inkább azt jelzik, hogy a világgazdaság egyes fejlett, a magyar gazdaság számára strukturálisan meghatározó térségeiben megnôtt a stagfláció kialakulásának a veszélye, ami közvetlenül a hitelválság kumulatív, és a reálgazdaságot is erôteljesen érintô hatásainak, illetve a nyersanyag- és energiahordozók árának drasztikus emelkedésének a következménye, de egyúttal a gazdasági korszakváltás, a strukturális átalakulások felgyorsulásának lehetôségét is magában hordozza. Magyarországon ez, a nemzetközi pénzpiaci és növekedési folyamatok strukturális, valamint a költség- és keresleti viszonyok átrendezôdésével is járó folyamat a belsô növekedési feltételek változásával együtt ugyancsak egy stagfláció közeli feltételrendszer kialakulásával fenyegethet.

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Board of Directors of MFB Hungarian Development Bank Private Limited Company

György Zdeborsky, Chairman Dr. Sándor Varga, Vice-Chairman Ákos Benke, Board Member Sándor Czirják, Board Member Dr. János Erôs, Board Member Tamás Nagy, Board Member

A magyar gazdaság számára meghatározó térségekben 2007-ben – 2006-hoz képest – némiképp mérséklôdött a gazdasági növekedés üteme, de az Európai Unió egészében (EU27) 2,9%, a közép-kelet-európai országokban pedig jóval gyorsabb volt a gazdaság bôvülése, mint Magyarországon. Az új közép-európai tagállamok (9 ország) általában 6% feletti gazdasági növekedést értek el. Az USA gazdasági növekedésének 2006-os fokozatos mérséklôdése 2007 elsô negyedévében megállt, s a második és harmadik negyedévben újra gyorsulni kezdett az amerikai gazdaság. De az utolsó negyedévben már ismét mutatkoztak a gazdasági lassulás jelei, és a GDP növekedése 2007-ben összességében 2,2% volt. Japánban a gazdasági növekedés 2006 harmadik negyedévéig tartó lassulása után újabb konjunktúra kezdôdött, s némi megtorpanás után 2007 harmadik negyedévében ismét 2% feletti ütemben bôvült a gazdaság, az éves növekedés azonban itt is viszonylag alacsony, 1,9% volt. A növekedési kilátások 2007 negyedik negyedévében a fejlett országokban, elsôsorban az USA-ban romlottak, de ennek kedvezôtlen következményei az év utolsó negyedében is még csak mérsékelten jelentkeztek. Az elmúlt években az USA növekedése és más országok fejlôdése közötti kapcsolat gyengült, azonban néhány ország továbbra is nagymértékben függ az USA importjától, amit jelentôsen befolyásol az amerikai lakossági fogyasztás alakulása. Ezért az Egyesült Államok gazdasági zavarai továbbra is nagymértékben befolyásolják a nemzetközi konjunktúra alakulását. Ugyancsak ezeket a hatásokat erôsítheti, ha a pénzügyi piacokon a helyzet még

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Supervisory Board of MFB Hungarian Development Bank Private Limited Company

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Management of MFB Hungarian Development Bank Private Limited Company

Judit Heller, Chairwoman of the Supervisory Board

Sándor Czirják, CEO

Flórián László Kovács, Board Member (until 15 May 2008)

Dr. János Erôs, CEO

László Mészáros, Board Member

Sándor Aladics, Deputy CEO (Product Development and Government Coordination)

Dr. Balázs Poczkodi, Board Member

Zoltán Lex, Deputy CEO (Business) Gábor Merfelsz, Deputy CEO, CFO (Finance)

Employee representatives on the Supervisory Board:

Ákos Almási, Managing Director (Business Coordination)

Ákos Almási

Prof. Péter Gál, Managing Director, Chief Economist

Lajos László Fábián

Kinga Huray, Managing Director (Accounting)

Dr. Ágnes Zakar

Zsolt Lakatos, Managing Director (Lending) Márta Mizsák, Director (Internal Audit) Sándor Orosz, Managing Director (Bank Operations) Katalin Ôry Kovács , Managing Director (Communications) Csaba Palicskó, Managing Director (Brussels, Representation Office) Katalin Lajta, Managing Director (Human Resources) Dr. Béla Sándor, Managing Director (Risk Management and Monitoring) György Szelényi, Managing Director (Money and Capital Markets) Dr. András Szentgyörgyi, Managing Director (Legal Directorate)

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MFB Hungarian Development Bank Private Limited Company

1051 Budapest, Nádor u. 31. Postal address: H-1365 Budapest, Pf. 678 Telephone: +36 1 428 1400, +36 1 428 1500 Fax: +36 1 428 1490 Call Center: 06 40 555 555 Customer service: 1051 Budapest, Nádor u. 31. Telephone: +36 1 428 1574, +36 1 428 1306 E-mail: [email protected], [email protected] Website: www.mfb.hu Reuters: MBFB S.W.I.F.T. Code: HBID HUHB

Design, pre-press work: DRAFTFCB Printed: 2009

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Annual Report. The Development Bank of Hungary

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