FRANKFURT Hungary's biggest bank OTP is moving closer to buying loss-making local rival MKB from German state-backed lender BayernLB, three sources close to the matter said on Wednesday.
OTP and public sector bank BayernLB have been in intense talks in recent weeks and are likely to reach an accord, the sources said, although one added the price was yet to be agreed.
Any purchase would help OTP to consolidate its position as Hungary's biggest bank and conform to government plans to move banking assets from foreign into domestic hands.
Selling MKB would also be a huge step forward for BayernLB, whose results have been burdened by the loss-making Hungarian unit.
OTP and BayernLB declined to comment.
The European Commission ordered BayernLB last year to restructure and sell MKB by 2015 as a precondition for approving state aid for the German regional lender. BayernLB ran into trouble in 2008 after risky investments turned sour.
OTB said as recently as December it was interested in any bank that might come up for sale in Hungary, including MKB.
Bavarian state premier Horst Seehofer said on Monday he had been in Hungary recently, adding to speculation that BayernLB, majority-owned by Bavaria, was nearing a deal.
Hungarian Prime Minister Viktor Orban, the favorite to win a new four-year term at elections on April 6, has also said repeatedly he would like the majority of the country's financial sector to be owned domestically.
Any decision about MKB's sale is unlikely before the election, two of the sources said.
Aside from MKB, foreign-owned banks in Hungary include Austria's Erste Bank and Raiffeisen Bank, Italy's Intesa Sanpaolo and UniCredit, as well as Belgium's KBC.
Orban has used a variety of punitive measures, including one of Europe's highest bank taxes, to limit what his government saw as unfair profits in the sector and to address Hungary's problem with foreign currency loans hit by exchange rate moves.
He also used the proceeds to cut the country's deficit, which helped him to remove Hungary from the European Union's fiscal offenders' list last year.
BayernLB has struggled to get rid of MKB for years. MKB lost 409 million euros ($564 million) in 2013 alone, dragging down results at BayernLB.
MKB had assets of 6.6 billion euros at the end of 2013 and a market share of about 10 percent for retail and corporate lending in Hungary.
(Additional reporting by Marton Dunai in Budapest and Arno Schuetze in Frankfurt; Writing by Thomas Atkins; Editing by Victoria Bryan and Mark Potter)