UPDATE 1-Austrian bankers sour over Hungary tax surprise
* Bank Austria, Raiffeisen still committed to Hungary -CEOs
* Raiffeisen calls Budapest bank tax change a "low blow"
* Bank Austria says Budapest not a dependable partner (Recasts with Bank Austria CEO, Bavarian minister)
By Michael Shields and Angelika Gruber
VIENNA, Oct 18 (Reuters) - Senior Austrian bankers accused the Hungarian government of treachery by abandoning a pledge to halve a controversial bank levy next year.
But they said they had no plans to quit their eastern neighbour despite the latest run-in with Prime Minister Viktor Orban and his unorthodox fiscal policies.
Hungary said on Wednesday it would not slash Europe's highest bank levy and would double the tax on financial transactions it launches next year, steps it hopes will help avert European Union sanctions over its budget deficit.
"This is a low blow for all banks. The government has broken its pledge to halve the levy in 2013," Raiffeisen Bank International Chief Executive Herbert Stepic said.
The measures, which could dim Hungary's prospects for a financing deal with the International Monetary Fund, come after the government saddled banks with losses by letting borrowers repay foreign-currency mortgages at below-market rates.
"This led to such a mighty bloodletting that the banks will certainly need some time to recover from this," Stepic said, but he also took a long-term view of Hungary's market potential.
"I think Raiffeisen will be in Hungary when there is no longer an Orban government," he told reporters on the sidelines of an investment conference on Thursday.
The IMF said in July that Budapest should abandon ad hoc tax measures, focus more on sustainable spending cuts and seek to restore the soundness of the heavily taxed financial sector.
Well over half the assets in Hungary's banking sector are foreign-owned. The biggest banks include local subsidiaries of Austria's Erste Group and Raiffeisen, Belgium's KBC , and Italy's Intesa Sanpaolo and UniCredit.
Orban has been criticised by foreign governments, the EU and business lobbies over a series of policies that force banks and big business to pay for Hungary's budget retrenchment since 2008, in contrast to the austerity applied elsewhere in Europe. He continues to dominate opinion polls at home.
Willibald Cernko, head of UniCredit's Bank Austria unit, said he was let down by Hungary's latest policy twist.
"I find it disappointing because especially at times like these, with all the difficulties we all have ... what we need is dependability," Cernko told journalists, saying government, banks and companies had to work together to boost confidence.
"If agreements are scrapped then I have to say it is very, very regrettable. It is not just a question of whether it is legal, it is also a matter of ethics," he said.
VOTING WITH FEET
Bank Austria - emerging Europe's biggest lender ahead of Raiffeisen and Erste Group - nevertheless plans to stay in Hungary, where Cernko noted it is one of the few banks to make money thanks to its focus on corporate clients and conservative lending policy.
Hungary has promised to cut the bank levy in half from 2014, Bavaria's finance minister said after meeting counterparts from Hungary and Austria in Vienna.
Thumbing its nose at foreign banks poses potential problems for Hungary. Lenders are already scaling back business there amid campaigns to hoard capital as a way to withstand the European debt crisis and meet tougher regulatory standards.
Ratings agency Standard & Poor's says external financing of western banks' Hungarian units has fallen by the equivalent of 15 percent of Hungary's gross domestic product since mid-2010.
"Orban thinks he holds the foreign banks captive, but the reality is that they are voting with their feet - deleveraging out of Hungary as quickly as they possibly can," Standard Bank analyst Timothy Ash said in a research note. "This is obviously going to be bad for growth."
RBI has said bank levies in Austria and emerging Europe were set to rise in 2012, anticipating an earnings hit of around 190 million euros, of which 40 million euros is from Hungary.
RBI lost 76 million euros before income tax in Hungary in the first half, while Bank Austria earned 47 million euros before tax. Erste has said it will make money in Hungary only in 2014.
($1 = 0.7621 euros) (Editing by Catherine Evans)
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