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Financials

REFILE-Hungary's efforts to sell Budapest Bank stalling - sources

(Refiled to delete extraneous word ‘for’ in ninth paragraph)

* Officials have previously said sale could start this year

* Hungary has until early 2018 to sell major banking stakes

* Some say bank may not fetch sufficiently high price now

By Gergely Szakacs

BUDAPEST, Nov 17 (Reuters) - Efforts by Hungary’s government to sell Budapest Bank have stalled, according to banking industry sources, raising doubts about whether it will be able to meet a pledge it made in 2015 to sell majority shareholdings in the sector within three years.

After taking office six years ago Prime Minister Viktor Orban nationalised several banks and implemented policies to cut foreign ownership in the sector. This included levying Europe’s highest bank tax and other measures only to find they led to a reduction in lending and left what used to be a largely foreign-owned industry struggling to turn a profit.

Last year, following a dip in investments, the government agreed to reshape its relationship with the banks in return for more lending.

Under the agreement Hungary and the European Bank for Reconstruction and Development have bought 15 percent stakes in Erste Bank Hungary from its Austrian owner Erste Group Bank to help strengthen its capital base to support more lending.

The government also committed itself to transferring all its majority stakes in local banks to the private sector within three years.

Orban has increased Hungarian ownership of local banks, previously dominated by foreign names, to above 50 percent and the state sold its holding in MKB Bank, the country’s sixth largest bank by assets, to a consortium of investors earlier in June for $134 million.

Meanwhile the government bought Budapest Bank from GE Capital for $700 million in 2015, and officials said the resale process would start in 2016.

But Orban has yet to give any details on how the government plans to privatise Hungary’s ninth-largest lender and the sources say the government is running out of time before it faces elections in 2018.

“The big issue is that the government wants to get what it paid and that is a hell of a multiple in today’s market,” one of the sources said.

“Nothing is going to be decided by the end of this year, but you might get a statement indicating that the intention is to sell,” the source said.

When asked about when Budapest Bank could be sold, Development Ministry spokesman Gergely Arzt said:

“The work regarding the strategic direction of the bank is ongoing. The decision will be made taking market developments, as well as the interests of the Hungarian state and Budapest Bank into account.”

Arzt declined to comment on the reasons for the delay. A spokeswoman for Budapest Bank declined to comment. ($1 = 289.16 forints) ($1 = 0.9326 euros) (Editing by Rachel Armstrong, Greg Mahlich)

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