FRANKFURT Hungary's biggest bank OTP OTPB.BU is moving closer to purchasing loss-making bank MKB BLGGM.UL from German state-backed lender BayernLB BAYLB.UL, three sources close to the matter said on Wednesday.
Both OTP and public sector bank BayernLB have engaged in intense talks in recent weeks and are likely to reach an accord, the two sources said. One of the unresolved questions separating the parties from a deal is the price, one source said.
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.
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 that it was interested in any bank that could come up for sale in Hungary, including MKB.
Bavarian state premier Horst Seehofer said on Monday that he had been in Hungary recently, lending to speculation that BayernLB, majority-owned by the German state of Bavaria, was getting closer to a deal.
Hungary's Prime Minister Viktor Orban, 50, the favorite to win a new four-year term at elections on April 6, has said repeatedly that he would like the majority of the country's financial sector to be owned domestically.
Any decision about a MKB sale is unlikely before the election, the two sources said.
Aside from MKB, foreign-owned banks in Hungary include Austrian Erste Bank (ERST.VI) and Raiffeisen Bank (RBIV.VI), Italy's Intesa Sanpaolo (ISP.MI) and UniCredit (CRDI.MI), as well as Belgium's KBC (KBC.BR).
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
Orban has used a variety of punitive measures, including one of Europe's highest bank taxes, to limit what his government has said were unfair profits and to solve the notorious problem of foreign currency denominated household loans.
He also used the proceeds to cut the country's deficit, which helped him to remove the country from the European Union's fiscal offenders' list last year.
OTP and BayernLB declined to comment for this story.
BayernLB has struggled to get rid of MKB for years. MKB lost 409 million euros in 2013 alone, dragging down results at BayernLB.