In Hungary

SME sector struggling in Hungary

May 14, 2014

The SME sector struggling in Hungary with a sharp rise in bankruptcies and a shattered structure of companies. That was one of the issues were addressed at the Portfolio CEE Private Equity & Corporate Finance conference in Budapest.

The structure of the corporate sector is extremely shattered in Hungary. There are 1.7 million company owners and managers in the country. Fluctuation in the sector is huge. 15% of the companies were either set up or will go into oblivion in any given year, i.e. their operation do not span from January and December. This is tenfold of the European reading. 80% of the new players are linked to former companies; they reappear on the market time and time again, leaving behind massive debts and tax arrears. The fluctuation is the strongest in catering and the construction sector, Richárd Pertics, head of Opten, a major player in business and legal information, is quoted by

As regards restructurings, the situation does not seem to be worse than a year ago. There is a serious shortcoming in the area of bank financing, but in some areas such as export financing some progress was made, noted Gábor Borbély, partner at DLA Piper Horváth & Partners Law Firm.

The biggest problem is that the switching of balances to market values did not take place, and so many companies are still overfinanced. That is why banking portfolios are risky, which hinders customers in obtaining credit. There is a long-term deleveraging and in a highly regulated environment the banks would need to apply means that would take them to highly uncertain territories.

Restructurings in Hungary are very ad-hoc. Time is a huge factor in this particular problem area, added Géza Egyed, consultant at GE StrateGo. The decision making process at banks is overly long due to which banks are haemorrhaging millions. The situation is even more complex when there are several financers at once because the proper decision making mechanisms are missing.


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