Annual Report. The Development Bank of Hungary

Átírás

1 Annual Report The Development Bank of Hungary

2 Contents Introduction Economic environment of MFB Hungarian Development Bank Private Limited Company in Results of MFB Plc. Independent Auditor's Report Balance sheet (assets and equity/liabilities) and off-balance sheet items Income statement Balance sheet according to International Financial Reporting Standards Income statement according to International Financial Reporting Standards Equity differences between Hungarian accounting standards and IFRS 1. MFB Hungarian Development Bank Private Limited Company 2. Developments in business activities Key objectives of business plan Lending activities Total lending portfolio Programme loans Enterprise development Municipal infrastructure development Agricultural development Residential energy conservation programmes Direct loans Development purpose equity investments Funding activities 3. MFB Banking Group 4. Activities supporting the core tasks of the Bank Development and Finance Appendices Board of Directors of MFB Hungarian Development Bank Private Limited Company Supervisory Board of MFB Hungarian Development Bank Private Limited Company Management of MFB Hungarian Development Bank Private Limited Company 3

3 Introduction When we evaluated the operating conditions and business opportunities for MFB in the 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 27, 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, 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 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 21, 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. Despite 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 29 as well. Nevertheless, the figures and features of the Bank's activities in 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. György Zdeborsky Dr. János Erôs 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, introducing new products and extending more than HUF 25 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 29 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 György Zdeborsky Chairman of the Board Dr. János Erôs CEO Sándor Czirják CEO 4 5

4 The Economic environment of MFB Hungarian Development Bank Private Limited Company in The economic environment of the Hungarian Development Bank in was characterised by a certain duality both in terms of international funding and local economic and investment trends. In early to mid 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. In the global economy, the mortgage and housing crisis evolved from the middle of into a money and capital market crisis and by the end of 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 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. ever more sluggish economic activity and the considerable deterioration in growth and demand expectations in 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 Q1 Quarterly GDP in some CEE countries (compared to previous quarter, ) 27 Q2 27 Q3 Czech Republic Hungary 7 27 Q4 Poland Q1 Slovenia -3.4 Source: Eurostat data Q2 Q3 Slovakia Q4-4.1 In recession Compared to the growth of 4.9 in 27 the world economy slowed down sharply in but still managed to post a relatively high rate of 3.2. However, the trend clearly illustrates that we can expect a decline of in 29. 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 (according to OECD figures GDP in the fourth quarter fell by 1. 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 27. 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 Quarterly GDP in some developed countries (compared to previous quarter, ) Q1 27 Q2 Euro area France 27 Q3 27 Q4 Q1 Germany Japan 1.5 Source: OECD data Q2 Q3 USA Q4 6 7

5 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 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. 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, the crisis of confidence means that there is still no substantial interbank lending. Consequently, the important characteristics of international financial trends in the second half of 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 had been 3., with a rate of 4. in the euro area and 2.75 in Switzerland; by the end of the year these fell to.25, 2.5 and.5 respectively. The Bank of England's policy rate hit a historical low in December (2.) Fed interest and consumer price index in USA (, ) Jan Febr March Apr May June July Aug Sept Oct Nov Dec FED interest (data as at the end of the month) US consumer price index (yoy) Central bank interest and consumer price index in euro area (, ) Jan Febr March Apr May June July Aug Sept Oct Nov Dec ECB key interest (data as at the end of the month) Consumer price index in euro area (yoy) 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.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.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 (.39 percent at the end of December ). 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 : 1.23, December : 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.11 percent, which rose to 3.32 by the middle of October before falling back to 1.18 by the end of the year. 3.8 Source: ECB, Eurostat data Source: ECB, Eurostat data 8 9

6 Interest trends in euro area (, ) Jan Febr March Apr May June July Aug Sept Oct Nov Dec ECB base interest (data as at the end of the month) EURIBOR (data as at the end of the month) Source: ECB, By the end of 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 Corporate loans (within 5 years, new investments) Corporate loans (more than 5 years, new investments above EUR 1 million) 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 27; 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 Domestic macroeconomic trends in 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. 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 27 (exports: 15.8, imports: 12). Household consumption essentially did not change throughout (.1) and public consumption dropped by 2.1, and as a result total consumption in decreased by.4 in annual terms. In the first half of last year, MFB macroeconomic analyses expected to see growth pick up in thanks to the low base figure in 27 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 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.). 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 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 the local currency became very volatile and weakened substantially to other currencies. 1 11

7 Az MFB ZRT. mûködési környezete Quarterly GDP and investments in Hungary (compared to same quarter in previous year, ) Q Q2 Investments volume indices Source: CSO data 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 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 than the central bank's interest rate) Q3 GDP volume indices -1.2 Q4 Interest trends in Hungary (, ) Jan Febr March Apr May June July Aug Sept Oct Nov Dec MNB base interest (data as at the end of the month) BUBOR (data as at the end of the month) Source: MNB data Corporate loans' rates (within 5 years) Corporate loans' rates (more than 5 years) 1 kedvezôtlenebbre fordul a szigorodó hitelfeltételek és a romló likviditás következtében. A pénzpiaci problémák 13 tovaterjedése, s az ahhoz kapcsolódó reálgazdasági lassulás egyre biztosabbnak tûnik. E hatás mérséklésére irányul a különbözô likviditásnövelô 11 és gazdaságélénkítô konstrukciók kialakítása egyes országokban, illetve nemzetközi összefogásban Interest rate and consumer price index in Hungary (, ) Negyedéves GDP növekedés (elôzô év azonos negyedévéhez képest, ) Jan Febr March Apr May June July Aug Sept Oct Nov Dec 7 MNB base interest Consumer price index (yoy) (data as at the end of the month) 2.6 Source: MNB data The adverse economic -.1 trends in accumulated in the Hungarian economy. -.9 After the -1.2 working-day -2 adjustment GDP grew by.5 in. The conditions of slowing exports in the second half of the year became increasingly difficult, while -3.4 domestic investments -4.1 contracted by -4 around 3 on the 27 previous 27 year. In 27 addition, 27 funding costs rose sharply, which made the financing of external debt Q1repayments Q2 more Q3 expensive. Q4 Q1 Q2 Q3 Q4 Czech Republic Poland Slovakia In the MFB loan Hungary portfolio (adjusted to the Slovenia weak forint) totalled HUF 71 billion, which accounts for 3.5 of the total loans of the credit institutions operating in form of limited company without MFB, Eximbank and KELER Source: Eurostat and 9.9 data of the total loans extended by the credit institutions operating in form of limited company to non-financial enterprises. 63 or HUF 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 businesses by credit institutions operating in form of limited company. 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. 27- ben a meghatározó árfolyam alakulás a dollár gyengülése volt 27 a fontosabb valutákkal szemben (az euróhoz képest mintegy 15), az árfolyam- és kamatvolatilitás növekedése miatt pedig a Share of MFB in loans extended to Hungarian SMEs kockázatok is nehezebben kalkulálhatóvá váltak. Emellett az 7. energiahordozók, nyersanyagok 11. és mezôgazdasági termékek árának jelentôs emelkedése mind költségoldalról, mind pedig az inflációs Share of veszélyek MFB compared erôsödése to total révén assets 27-ben of Hungarian gátolta a nemzetközi 3.6 folyamatok kedvezô 3.5 irányú banks változását. Annual loan disbursements of MFB compared to investments in national economy Mindezek hatására -ban a világgazdasági növekedési ütem csökkenésére lehet számítani, s egyre nagyobb annak a veszélye, hogy az alacsony gazdasági növekedés hosszabb távon is In viszonylag MFB magas had inflációval total assets összekapcsolódva of HUF 1,28 billion, stagflációs which jellegû amounts helyzet to 3.5 bár of the közgazdasági aggregate total assets of credit institutions operating in form of limited company (including MFB)

8 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 22 until 31 December the Total shareholder's equity of the Bank rose by more than HUF 45 billion, i.e. by almost 5. 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 Cumulative inflation 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 22. MFB ZRT. ÉVES JELENTÉS 14 15

9 Az MFB ZRT. mûködési környezete Total shareholder's equity IFRS Share capital (HUF million) (HUF million) [ ] Independent Auditor's Report 22 91,879 87,57 Az MFB Zrt. tevékenységét meghatározó nemzetközi gazdasági és hazai makrogazdasági 23 1,678 87,57 feltételek 27-ben az elôzô évekhez képest kevésbé egyértelmûen stabil és kedvezô jellegûek 24 17,465 87,57 voltak. A tágabb értelemben vett mûködési környezetünket több világgazdasági bizonytalansági tényezô, 25 illetve a magyar gazdaság 117,16 makrogazdasági stabilizációs folyamataival 87,57 összefüggô viszonylag 26 kedvezôtlen növekedési folyamatok 122,543 határozták meg. Összességében 87,57 a nemzetközi gazdaság 27 fejlôdéséhez kapcsolódó kockázatok 131,254 növekedtek, egy esetleges 87,57 világgazdasági korszakváltás több jele is befolyásolta a nemzetközi 137,226 pénzpiaci, strukturális és 87,57 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 27-ben viszonylag dinamikusan, de az elôzô évekhez The Bank has not drawn dividends from its subsidiary companies, focusing rather on increasing 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, particularly in the second half of the year when a világgazdaság egyes fejlett, a magyar gazdaság számára strukturálisan meghatározó térségeiben megnôtt a stagfláció kialakulásának a veszélye, ami közvetlenül a hitelválság kumulatív, external conditions took a turn for the worse. The Bank contributed to the achievement of 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 MFB substantially increased its loan portfolio with the volume of extended loans együtt ugyancsak egy stagfláció közeli feltételrendszer kialakulásával fenyegethet. exceeding HUF 25 billion overall. The Bank disbursed almost HUF 124 billion under the loan programmes, A magyar gazdaság while new számára direct meghatározó loans exceeded térségekben HUF ben billion. The total 26-hoz amount képest of outstandinképp loans mérséklôdött increased from a gazdasági HUF 554 növekedés billion at üteme, the end de of 27 az Európai to HUF Unió 71 egészében billion by the (EU27) end némi- of 2,9,. a közép-kelet-európai In response to the országokban financial and pedig economic jóval gyorsabb crisis evolving volt a in gazdaság the second bôvülése, half of mint the year Magyarországon. the Bank has Az introduced új közép-európai new loan tagállamok programmes. (9 ország) It is through általában working 6 capital feletti gazdasági financing in növekedést particular értek that the el. Az Bank USA aims gazdasági to meet növekedésének the demands 26-os arising due fokozatos the scaled mérséklôdése back lending 27 activity elsô negyedévében of commercial megállt, banks. s a második és harmadik negyedévben újra gyorsulni kezdett az amerikai gazdaság. De az utolsó negyedévben már ismét mutatkoztak a gazdasági lassulás The jelei, Bank's és a GDP liquidity növekedése position 27-ben is sound and összességében it has sufficient 2,2 reserves volt. Japánban to discharge a gazdasági its liabilities; növekedés 26 to expand harmadik its negyedévéig loan portfolio tartó considerably lassulása and után new újabb products konjunktúra were released kezdôdött, in response s némi megtorpanás the changed után conditions. 27 harmadik MFB operates negyedévében in a prudent ismét manner, 2 feletti allocating ütemben the bôvült necessary a gazdaság, levels it managed of az impairment éves növekedés and provisions azonban itt during is viszonylag the regular alacsony, rating reviews. 1,9 volt. The A Bank's növekedési profitability kilátások has 27 been stable negyedik for negyedévében many years. The a fejlett profit országokban, before tax elsôsorban calculated az in USA-ban accordance romlottak, with International de ennek Financial kedvezôtlen Reporting következményei Standards az amounted év utolsó to negyedében HUF 7.1 billion. is még csak mérsékelten jelentkeztek. Az elmúlt években az USA növekedése és más országok fejlôdése közötti kapcsolat gyengült, The azonban Bank néhány continued ország its economical továbbra is approach nagymértékben to costs függ in. az USA Operating importjától, costs amit totalled jelentôsen HUF 9.1 befolyásol billion in az, amerikai which lakossági amounts fogyasztás to 98.4 of alakulása. the annual Ezért budgeted az Egyesült amount. Államok This is 3.2 gazdasági than zavarai the továbbra figure from is 27, nagymértékben which corresponds befolyásolják to a 3 a nemzetközi reduction in konjunktúra costs in real alakulását. terms. higher Ugyancsak ezeket a hatásokat erôsítheti, ha a pénzügyi piacokon a helyzet még MFB MFB ZRT. ANNUAL REPORT 16 17

10 ] MFB Hungarian Development Bank Private Limited Company Balance Az sheet MFB and ZRT. off-balance mûködési sheet környezete items under Hungarian accounting standards [ ] MFB Hungarian Development Bank Private Limited Company Income statement according to Hungarian accounting standards Az ASSETS MFB Zrt. tevékenységét meghatározó nemzetközi gazdasági és Data hazai in HUF makrogazdasági million feltételek 27-ben az elôzô évekhez képest kevésbé egyértelmûen stabil és kedvezô jellegûek voltak. 1. A Liquid tágabb assets értelemben vett mûködési környezetünket több világgazdasági 8,959 bizonytalansági tényezô, 2. Government illetve securities a magyar gazdaság makrogazdasági stabilizációs 141,74folyamataival összefüggô 19,32 5,926 viszonylag 3. Placements kedvezôtlen with other növekedési banks folyamatok határozták meg. 363,252 Összességében a nemzetközi 376,982 gazdaság 4. Receivables fejlôdéséhez from customers kapcsolódó kockázatok növekedtek, egy 264,81 esetleges világgazdasági 36,667kor- szakváltás 5. Debt több securities, jele is including befolyásolta fixed-income a nemzetközi debt securities pénzpiaci, strukturális 25, és növekedési 25, folyamatokat, 6. a Shares magyar and gazdaság other variable-yield teljesítménye securities pedig részben a belsô 2, stabilizációs kényszer, 9,93 másrészt 7. a Shares, külsô bizonytalanabb holdings held to maturity feltételek, illetve e két hatás összekapcsolódása 988 miatt is 1,4 ellentmondásosan 8. Shares, alakult. holdings A in világgazdaság related companies 27-ben viszonylag dinamikusan, 53,236 de az elôzô 57,919 évekhez képest 9. Intangible már kevésbé assetsgyorsan, 4,9-kal nôtt, az év utolsó negyedévében 2,18 azonban visszaesett 2,313 a növekedés. 1. Property, Az év plant folyamán and equipment erôsödô gazdasági bizonytalanságok 3,94 egyre inkább azt jelzik, 4,48 hogy a világgazdaság 11. Own sharesegyes fejlett, a magyar gazdaság számára strukturálisan meghatározó térségeiben 12. megnôtt Other assets a stagfláció kialakulásának a veszélye, ami közvetlenül 15,62 a hitelválság kumulatív, 34,832 és a 13. reálgazdaságot Prepaid expenses is and erôteljesen accrued income érintô hatásainak, illetve a nyersanyag- 1,333 és energiahordozók 13,728 árának TOTAL drasztikus ASSETS emelkedésének a következménye, de egyúttal 891,383 a gazdasági korszakváltás, 1,27,814 a 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 együtt ugyancsak egy stagfláció közeli feltételrendszer kialakulásával fenyegethet. 1. Placements and loans from other banks 367,77 457, Liabilities to customers 12,676 43,46 A magyar gazdaság számára meghatározó térségekben 27-ben 26-hoz képest némiképp mérséklôdött a gazdasági növekedés üteme, de az Európai Unió egészében (EU27) 3. Issued securities 354,69 37, 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 26-os fokozatos mérséklôdése Subordinated debt 9,5 elsô negyedévében megállt, s a második és harmadik negyedévben újra gyorsulni kezdett az 8. Subscribed capital 87,57 87,57 amerikai 9. Subscribed, gazdaság. but De unpaid az capital utolsó (-) negyedévben már ismét mutatkoztak a gazdasági lassulás jelei, 1. és Capital a GDP reserve növekedése 27-ben összességében 2,2 volt. 16,256 Japánban a gazdasági 16,256 növekedés General harmadik reserve negyedévéig tartó lassulása után újabb konjunktúra 5,416 kezdôdött, 6,5 s némi megtorpanás 12. Profit reserve után (±) 27 harmadik negyedévében ismét 2 feletti 13,351 ütemben bôvült a gazdaság, 21,299 az 13. éves Allocated növekedés reserve azonban itt is viszonylag alacsony, 1,9 volt. A növekedési kilátások 27 negyedik 14. Valuation negyedévében reserve a fejlett országokban, elsôsorban az USA-ban romlottak, de ennek kedvezôtlen 15. Retained következményei earnings (±) az év utolsó negyedében is még csak 7,948 mérsékelten jelentkeztek. 5,77 Az elmúlt években az USA növekedése és más országok fejlôdése közötti kapcsolat gyengült, TOTAL EQUITY AND LIABILITIES 891,383 1,27,814 azonban néhány ország továbbra is nagymértékben függ az USA importjától, amit jelentôsen befolyásol OFF-BALANCE az amerikai SHEET ITEMS lakossági fogyasztás alakulása. Ezért az Egyesült Data in Államok HUF million gazdasági zavarai továbbra is nagymértékben befolyásolják a nemzetközi konjunktúra alakulását. Ugyancsak Contingent ezeket liabilities a hatásokat erôsítheti, ha a pénzügyi piacokon 13,76 a helyzet még 156,916 Commitments 63,214 13,892 Off-balance sheet receivables 83, ,727 INCOME STATEMENT Data in HUF million Interest and similar income 59,653 56,44 2. Interest expense and similar charges 42,416 36,934 NET INTEREST (1-2) 17,237 19,11 3. Income from securities 1, Fee and commission income Fee and commission expenses 1,628 2,42 6. Net financial result Other income from business activities General administrative expenses 7,677 7, Depreciation 1,93 1,74 1. Other expenses on business activities 1,248 1, Impairment on receivables and risk provisioning for commitments and contingent liabilities 1,586 11, Reversal of impairment on receivables and utilisation of risk provisions for commitments and contingent liabilities 13,71 11, /A Difference between general risk provisions allocated and used Impairment on debt securities held to maturity and on shares, holdings in related and associated companies 3,14 1, Reversal of impairment on debt securities held to maturity and on shares, holdings in related and associated companies 1,368 1, Profit on ordinary activities 1,279 6, Extraordinary income 15,661 3, Extraordinary expenses 15,285 2,4 18. Extraordinary profit (16-17) Profit before tax (±15±18) 1,655 7, Taxation 1,824 1, Profit after tax (±19-2) 8,831 6, General provisioning, utilisation (±) Use of profit reserve for dividends, profit shares 24. Approved dividends and profit-shares RETAINED PROFIT FOR THE YEAR (±21± ) 7,948 5,77 MFB MFB ZRT. ANNUAL REPORT 18 19

11 MFB Hungarian Development Bank Private Limited Company Az MFB Balance ZRT. sheet mûködési according környezete to International Financial Reporting Standards [ ] MFB Hungarian Development Bank Private Limited Company Az MFB Income ZRT. statement mûködési according környezete to International Financial Reporting Standards BALANCE Az MFB SHEET Zrt. tevékenységét meghatározó nemzetközi gazdasági Data és hazai in HUF makrogazdasági million feltételek 27-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 Cash and balances at National Bank of Hungary 9,374 6,285 Placements with other banks 362, ,623 viszonylag kedvezôtlen növekedési folyamatok határozták meg. Összességében a nemzetközi Loans and advances, net of impairment for expected credit losses 265,688 37,523 gazdaság fejlôdéséhez kapcsolódó kockázatok növekedtek, egy esetleges világgazdasági korszakváltás több jele is befolyásolta a nemzetközi pénzpiaci, strukturális és növekedési folyama- Available-for-sale securities 23,935 49,794 Held-to-maturity securities 141, ,548 tokat, a magyar gazdaság teljesítménye pedig részben a belsô stabilizációs kényszer, másrészt a külsô bizonytalanabb feltételek, illetve e két hatás összekapcsolódása miatt is ellent- Investments 56,224 68,16 Property, plant and equipment 3,94 4,48 mondásosan alakult. A világgazdaság 27-ben viszonylag dinamikusan, de az elôzô évekhez Intangible assets 2,18 2,313 képest már kevésbé gyorsan, 4,9-kal nôtt, az év utolsó negyedévében azonban visszaesett a Current tax assets növekedés. Az év folyamán erôsödô gazdasági bizonytalanságok egyre inkább azt jelzik, hogy Deferred tax assets 52 a világgazdaság egyes fejlett, a magyar gazdaság számára strukturálisan meghatározó térségeiben megnôtt a stagfláció kialakulásának a veszélye, ami közvetlenül a hitelválság kumulatív, Other assets 23,311 46,78 Total és a assets reálgazdaságot is erôteljesen érintô hatásainak, illetve a 889,874 nyersanyag- és energiahordozók 1,26,396 árának drasztikus emelkedésének a következménye, de egyúttal a gazdasági korszakváltás, a Placements and loans from other banks 367,77 457,644 strukturális átalakulások felgyorsulásának lehetôségét is magában hordozza. Magyarországon Deposits from customers 12,676 43,46 ez, a nemzetközi pénzpiaci és növekedési folyamatok strukturális, valamint a költség- és Issued securities 351,49 367,884 keresleti viszonyok átrendezôdésével is járó folyamat a belsô növekedési feltételek változásával Hedged financial liabilities 3,18 4,849 együtt ugyancsak egy stagfláció közeli feltételrendszer kialakulásával fenyegethet. Provisions 2,673 2,89 Deferred tax liabilities 12 A magyar gazdaság számára meghatározó térségekben 27-ben 26-hoz képest némiképp mérséklôdött a gazdasági növekedés üteme, de az Európai Unió egészében (EU27) Other liabilities 12,66 13,298 Total 2,9, liabilities a közép-kelet-európai országokban pedig jóval gyorsabb 749,12 volt a gazdaság bôvülése, 889,17 mint Magyarországon. Az új közép-európai tagállamok (9 ország) általában 6 feletti gazdasági Subordinated növekedést debt értek el. Az USA gazdasági növekedésének 26-os 9,5 fokozatos mérséklôdése 27 elsô negyedévében megállt, s a második és harmadik negyedévben újra gyorsulni kezdett az Subscribed capital 87,57 87,57 amerikai gazdaság. De az utolsó negyedévben már ismét mutatkoztak a gazdasági lassulás Capital reserve 18,82 18,82 jelei, és a GDP növekedése 27-ben összességében 2,2 volt. Japánban a gazdasági növekedés 26 harmadik negyedévéig tartó lassulása után újabb konjunktúra kezdôdött, s némi Statutory reserves 6,438 6,452 Retained earnings 19,798 25,552 megtorpanás után 27 harmadik negyedévében ismét 2 feletti ütemben bôvült a gazdaság, Valuation reserve (634) (43) az éves növekedés azonban itt is viszonylag alacsony, 1,9 volt. A növekedési kilátások 27 Total negyedik shareholder's negyedévében equity a fejlett országokban, elsôsorban az 131,254 USA-ban romlottak, 137,226 de ennek kedvezôtlen következményei az év utolsó negyedében is még csak mérsékelten jelentkeztek. Total Az elmúlt liabilities években and shareholder's az USA növekedése equity és más országok fejlôdése 889,874 közötti kapcsolat 1,26,396 gyengült, azonban néhány ország továbbra is nagymértékben függ az USA importjától, amit jelentôsen Commitments and contingencies 14,13 157,796 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 kedvezôtlenebbre INCOME STATEMENT fordul a szigorodó hitelfeltételek és a romló likviditás Data in HUF következtében. million A pénzpiaci problémák tovaterjedése, s az ahhoz kapcsolódó reálgazdasági 27 lassulás egyre bizto- sabbnak tûnik. E hatás mérséklésére irányul a különbözô likviditásnövelô és gazdaságélénkítô Interest and similar income 6,54 56,13 konstrukciók kialakítása egyes országokban, illetve nemzetközi összefogásban. Interest expense and similar charges (42,2) (36,817) Net interest income 18,52 19,196 Negyedéves GDP növekedés Release for impairment losses (elôzô of loans év and azonos advances negyedévéhez képest, 4,811 ) (445) Fee and commission 8 income Fee and commission expenses 6 (1,628) (2,42) Net fee and commission expenses (1,289) (1,791) Profit from sale of investments Allowance for impairment losses of investments (966).8.3 (234) Dividend income 1, Net gain on foreign currency transactions 11 Other income ,69 1,147 Other operating income Q1 Q2 Q3 Q4 Q1 Q2 2,878 Q3 Q4 1,171 Czech Republic Poland Slovakia General and administrative expenses Hungary Slovenia (9,594) (9,881) Net loss on foreign currency transactions (663) Other provision charges Source: Eurostat data (2,457) (143) Other expenses (696) (946) Other operating expenses (12,747) (11,633) A gazdasági növekedés fékezôdése a reálgazdasági folyamatok jelentôs kamatcsökkentéssel történô Profit before élénkítését income tax indította el az Egyesült Államokban, ami a 11,51 dollár árfolyamát továbbra 7,138 is erôteljesen befolyásolja és az amerikai valuta folytatódó leértékelôdését eredményezte. 27- ben Taxation a meghatározó árfolyam alakulás a dollár gyengülése volt a fontosabb (1,953) valutákkal (1,37) szemben (az euróhoz képest mintegy 15), az árfolyam- és kamatvolatilitás növekedése miatt pedig a kockázatok Net profit for the is nehezebben year kalkulálhatóvá váltak. Emellett az energiahordozók, 9,557 nyersanyagok 5,768 és mezôgazdasági termékek árának jelentôs emelkedése mind költségoldalról, mind pedig az inflációs veszélyek erôsödése révén 27-ben gátolta a nemzetközi folyamatok kedvezô irányú változását. Mindezek hatására -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 MFB MFB ZRT. ANNUAL REPORT 2 21

12 Equity differences between Hungarian Accounting Standards and IFRS [ ] 1. MFB Hungarian Development Bank Private Limited Company Equity Net profit Statutory Profit Valuation Equity for the year reserves reserve reserve Data in HUF million Hungarian annual report 13,541 5, ,882 Reclassification of general risk provision 1,22 (62) 42 General risk provision (62) 62 General reserve 634 (634) Revaluation of financial instruments (189) (125) 24 (11) Deferred tax (12) International annual financial statement 131,254 5, (14) ,226 Company name: MFB Hungarian Development Bank Private Limited Company (MFB Zrt.) Registered office: 151 Budapest, Nádor u. 31. Date of foundation: 1 December 1991 Type of company: Registered company limited by shares Owner: Hungarian State (1) 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 87,57,, comprising 87,57 ordinary shares each with a nominal value of HUF 1,, Scope of activity: TEÁOR Other monetary activity TEÁOR Financial leasing TEÁOR Other financial activities not classified elsewhere Registration number: Banking Supervisory licence: 32/1993. Money and Capital Market Supervisory Authority licence: Website: 973/1997/F 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 21 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 Legislative amendments, audits by state bodies in Legislative amendments influencing the Bank's operations in : 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

13 The changes affecting the loan programmes of MFB are contained in Government Decree 139/ (V.16.) on the interest subsidies for derogation projects. The loan programmes were amended in accordance with the Government Decree. Based on the 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. To strengthen integration between primary producers and the processing industry MFB extended a loan of HUF 65 million to Agrár-Reorg Kft. in. For the task set forth in the Budget Act the Hungarian State provided a payment guarantee of HUF 4 billion MFB international relations, memberships European Association of Public Banks (EAPB) Member of the Association of EU banks in public ownership since November 22; Club of the Institutions in the European Union Specialising in Long-Term Credit (ISLTC) Associate member from April 23, full member since EU accession on 1 May 24; European Investment Fund (EIF) Since 9 July 23 MFB has held 5 shares as a member organisation; Network of European Financial Institutions for Small and Medium Sized Enterprises (NEFI) Observer from June 23, full member since EU accession on 1 May 24; To secure the Hungarian supply of nitrogen fertiliser the Government also provided an 8 payment guarantee for the 4-year loan and related charges of up to HUF 1 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 25. Full member since 28 August 23; Execution of other Government Decrees in : Based on government resolutions the Bank elaborated and introduced the New Hungary Agricultural Working Capital Loan Programme; since 15 September the interest rate has been BUBOR-based. The preparations for introducing the MFB New Hungary Agricultural Working Capital Loan Programme ensued in and the Loan Programme was launched at the beginning of 29. In the Bank elaborated and introduced the New Hungary Producers Sales Organisation Working Capital Loan Programme Correspondent banks of MFB abroad International Chamber of Commerce (ICC) Member since 23; Banking Association for Central and Eastern Europe (BACEE) MFB has been a Regular Member since 12 February ; European Development Finance Institutions (EDFI) Member since ; Loan Market Association (LMA) Member since. 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 1.5. MFB membership in local organisations 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

14 1.6. Rating MFB has had credit ratings assigned by Moody s Investors Service international ratings agency since 19 May 23. The Bank's credit rating of Aa1 on its foreign currency denominated senior, unsecured debt remained unchanged in. On 7 November 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, 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 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 : Under the active loan programmes the Bank extended loans of almost HUF 124 billion, of which HUF 12 billion was disbursed through commercial banks. The new disbursement of direct loans exceeded HUF 127 billion. In 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. 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

15 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. Additionally, the volume of direct lending also increased, reinforcing the ratio of investment project loans. From the second half of 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 was to mitigate the effects of the economic crisis in the financing of corporate, municipal and residential energy conservation developments in 29. The business strategy was drawn up accordingly Project financing 39 Active loan programmes Project financing Active loan programmes Closed loan programmes Project financing Project financing Active loan Active loanprogrammes programmes 1 1 Closed loan programmes Closed loan programmes 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 Total lending portfolio In 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 Property development, economic services 15.5 Municipalities 14. Industry 12.8 Agriculture Trade 5.5 Construction 5.3 Other services 3.7 Transport, storage, post, telecoms 1.9 Accommodation, catering 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

16 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 Budapest Approximately 5 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.) 18 Regional breakdown of total loans placed as of 31 December 17.1 Central Hungary Breakdown of total loans placed as of 31 December Northern Hungary 9.1 Northern Great Plain Southern Great Plain Western Central Transdanubia Transdanubia 4.3 Southern Transdanubia [ ] Az MFB ZRT. mûködési környezete 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 kedvezôtlenebbre is in reality much fordul higher. a szigorodó hitelfeltételek és a romló likviditás következtében. A pénzpiaci problémák tovaterjedése, s az ahhoz kapcsolódó reálgazdasági lassulás egyre biztosabbnak tûnik Programme E hatás mérséklésére loans 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 business operations of MFB comprise long-term loan programmes offering funding under preferential interest conditions to support the financing Negyedéves requirements GDP of corporate, növekedés municipal and residential developments that are considered (elôzô as év priorities azonos from negyedévéhez the perspective képest, 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 and 6in case of energy conservation investment for private individuals as well. 4 2 Programmes/types Active loan programmes 2 as of December Applications received no. HUF million no. HUF million-4.1 HUF million -4 Loan programmes 27 total , ,48 5,924364,1 61 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 New Hungary Enterprise Development Czech Republic Poland Slovakia Loan Programme 4, ,6 3,63 22, Hungary Slovenia of which: Micro-Credit Plus 54 5, ,981 1 "For a Successful Hungary" Source: Eurostat data Municipality Infrastructure Development Loan Programme 1, ,62 1, ,46 85 of which: Panel Plus , , A gazdasági növekedés fékezôdése a reálgazdasági folyamatok jelentôs kamatcsökkentéssel történô New Hungary élénkítését Agriculture indította Development el az Egyesült Államokban, ami a dollár árfolyamát továbbra is erôteljesen Loan Programme befolyásolja és az amerikai valuta 7 folytatódó 4,689leértékelôdését 56 eredményezte. 2, ben a meghatározó árfolyam alakulás a dollár gyengülése volt a fontosabb valutákkal szemben (az New euróhoz Hungary képest Agricultural mintegy Working 15), az árfolyam- és kamatvolatilitás növekedése miatt pedig a 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 1 3,99 1 3, inflációs veszélyek erôsödése révén 27-ben gátolta a nemzetközi folyamatok kedvezô irányú változását. Other loan programmes 495 2, , Applications approved Loan amount per client Mindezek hatására -ban a világgazdasági növekedési ütem csökkenésére lehet számítani, SME sector Large corporations 15 4 Municipalities Other 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. 3 31

17 Sectoral breakdown of loans placed under active programmes as of 31 December [ ] New Hungary Enterprise Development Loan Programme Municipalities 17. Trade 13.2 Industry 6.5 Agriculture Accommodation. catering Other services Construction Property development, economic services Transport, storage, post, telecoms 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 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 31 billion earmarked for the New Hungary Enterprise Development Loan Programme, the volume of approved loans rose by approximately 15 in. The average loan amount applied for as of 31 December was HUF 55.7 million, which constitutes a growth of 4.5 compared to the 27 figures. The Bank has refinancing agreements with roughly 4 credit institutions, including more than 2 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. Sectoral breakdown of Enterprise Development Loan Programme as of 31 December Regional breakdown of loans placed under active programmes as of 31 December Trade Industry Other services (municipalities, health-care, other services) Accommodation, catering Construction Transport, storage, post, telecoms Property development, economic services Agriculture Budapest Central Hungary Northern Hungary Northern Great Plain Southern Great Plain Western Central Transdanubia Transdanubia Southern Transdanubia Looking at the sectoral breakdown of the Enterprise Development Loan Programme compared to 27, the highest growth of 3.1 was recorded for accommodation and catering, but the number of 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 1 years

18 "For a Successful Hungary" Az MFB ZRT. mûködési környezete Municipality Infrastructure Development Loan Programme Regional breakdown of Enterprise Development Loan Programme as of 31 December 17.3 Budapest 15. Central Hungary 8.1 Northern Hungary 15.7 Northern Great Plain 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. The Enterprise Development Loan Programme finances a gross sum of almost HUF 7 billion in investments and developments, contributing to the growth of the national and local economy. 1.8 Southern Great Plain Western Central Transdanubia Transdanubia 8,7 Southern Transdanubia One of the priorities of the Bank's business strategy is to support the infrastructure development objectives of municipalities. The "For a Successful Hungary" Municipality Infrastructure kedvezôtlenebbre fordul a szigorodó hitelfeltételek és a romló likviditás következtében. A pénzpiaci problémák tovaterjedése, s az ahhoz kapcsolódó reálgazdasági lassulás egyre biztosabbnak tûnik. E hatás mérséklésére irányul a különbözô likviditásnövelô és gazdaságélénkítô Development Loan Programme, which has been in operation since November 24, is the loan 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 2-25 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 (elôzô év by azonos the end negyedévéhez of December képest, based ) on 1,633 applications. Infrastructure 8 development investments can be financed from any of the nine loan objectives 7 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 4 concerned the construction of roads and the renovation of municipal facilities. Adjusting to 2the development opportunities permitted by the New Hungary Development Plan, and in this respect 1.3 to the financing demands generated by the rising volume of municipal investments, financing is available under a separate loan objective in this loan programme for own funds required -2 for tenders announced in the operational programmes of the New Hungary 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 erôteljesen befolyásolja és az amerikai valuta folytatódó leértékelôdését eredményezte. 27- ben a meghatározó árfolyam alakulás a dollár gyengülése volt a fontosabb valutákkal szemben (az euróhoz képest 12.7 mintegy 15), az árfolyam- és kamatvolatilitás növekedése miatt pedig a kockázatok is nehezebben kalkulálhatóvá váltak. Emellett az 11.1 energiahordozók, nyersanyagok 11.9 és mezôgazdasági 9.6 termékek árának jelentôs emelkedése mind költségoldalról, mind pedig az 1 inflációs veszélyek erôsödése révén 27-ben gátolta a nemzetközi folyamatok kedvezô irányú változását Development Plan and in the New Hungary Rural Development -3.4 Programme Consequently, -4 more projects implemented with 27 tender funding 27 are being financed. The conditions enable Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 projects involving EU funding and an MFB loan to be implemented without the need for own funds, with terms of 25 Czech years, Republic a 5-year grace period Poland and a 4-year commitment Slovakia period. Hungary Slovenia A new factor from is that municipalities are eligible for subsidised interest even during the grace period in the case of derogation Source: projects Eurostat financed data under the Environment and Energy Operational Programme Mindezek hatására -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 Budapest Central Hungary Northern Hungary Northern Great Plain Southern Great Plain Western Central Transdanubia Transdanubia Southern Transdanubia 34 35

19 New Hungary Agriculture Development Loan Programme By the end of December 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. 4 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 1 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 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 [ ] Az MFB ZRT. mûködési környezete 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 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 biztosabbnak tûnik. E hatás mérséklésére irányul a különbözô likviditásnövelô és gazdaságélénkítô The financing options for the agricultural sector have been expanded with the MFB Cereals Loan 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 Negyedéves financing GDP options növekedés designed to mitigate the impacts of the international financial and (elôzô economic év azonos crisis negyedévéhez enabled MFB képest, to make ) an efficient contribution to the government's crisis management activities by the end of. This still involves working 8 7 together with the commercial banks and savings cooperatives. Consequently the Bank is able to maintain its 6 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, this also permits 2.6companies undertaking developments and investments to continue benefiting 1.6 from the preferential conditions of the loan programmes at their own banks throughout the entire Hungarian banking.4.6.6sector Q1 27 Q2 27 Q3 Czech Republic Hungary 27 Q4 Poland Q1 Slovenia -3.4 Source: Eurostat data -.1 Q Q3 Slovakia Q4-4.1 New loan programmes were introduced from the second half of 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 MFB launched the New Hungary Agricultural Working Capital Loan Programme with a total frame amount of HUF 2 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. 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. 27- ben 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 27-ben gátolta a nemzetközi folyamatok kedvezô irányú változását. Mindezek hatására -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 36 37

20 Residential energy conservation programmes Direct loans In accordance with its strategic objectives the Bank strengthened its endeavours in the residential energy conservation programmes in. This was driven by the aim of providing households with the necessary development resources alongside the energy conservation tenders. 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. 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, 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 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. The Bank also provided direct loans to finance individual company projects in. The Bank disbursed more than HUF 127 billion in forint and foreign currency loans in 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 Sectoral breakdown ofdirect loans as of 31 December Hungarian Export-Import Bank Plc. loan 7.4 Other services 19.3 Student Loan Centre Plc. loan (municipalites, health-care, other services) 17.6 Industry 5.2 Transport, storage, post, telecoms 12.3 Property development, 3. Agriculture economic services.8 Accomodation, catering 8.3 Construction.5 Trade 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 55 million was approved by the end of 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 million for investments seeking to replace traditional energy resources with renewable energy sources. 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 (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