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Financials

Hungary cuts cash withdrawal fees in fresh blow to banks

* Two withdrawals a month worth up to 150,000 forints to be free of charge

* Measure comes after series of popular steps as April election approaches

* Ruling party says banks lifted costs more than justified by tax burdens

BUDAPEST, Nov 12 (Reuters) - Hungary’s parliament has passed a motion to stop banks from charging customers for two withdrawals of cash monthly up to the value of average wages, the latest move to aid consumers at the expense of banks in the run in to 2014 elections.

Unlike most countries in Europe, banks in Hungary charge customers fees even for using hole in the wall cash machines.

This is partly due to the 0.6 percent government tax levied on cash withdrawals, but Prime Minister Viktor Orban’s government says the fees charged by lenders have risen more than was justified by the tax burden.

The motion passed late on Monday made two cash withdrawals worth up to a combined 150,000 forints ($670) per month free of charge. That compares to average monthly wages in Hungary of 149,300.

The ruling Fidesz party has taken a series of similar steps, including rises in teachers’ pay or government-imposed cuts in household energy prices, likely to be popular ahead of the April poll.

Levente Kovacs, the chief secretary of the Hungarian Banking Association told public radio that the changes could cost banks in Hungary, which already pay a steep bank levy, up to 42 billion forints ($188.91 million).

The reasoning attached to the legislation, which will come into effect from February, said the changes were needed due to a “drastic” increase in banking costs from end-2012 levels.

Hungary’s government launched a new tax on financial transactions this year as part of efforts to keep the budget deficit down and is also seeking to wind down foreign currency mortgages - expected to be in part at lenders’ expense.

Financial services prices shot up by 54.2 percent in October from the previous year based on official statistics.

“Domestic financial institutions have raised clients’ fees and commissions significantly more than justified by their tax burdens,” the authors of the legislation said in their reasoning attached to the bill.

“These costs changed in an unforeseen and unpredictable manner for clients.”

The authors said this measure was the “first step” in efforts to cut banking costs.

The measure will affect Hungary’s biggest lender, OTP Bank , as well as local units of Austrian Raiffeisen and Erste, Italy’s Intesa Sanpaolo and UniCredit, Belgium’s KBC and others.

Clients will have to apply for the free cash withdrawals, which will apply to a single bank account, in advance. The changes apply only to private consumers.

Ratings agency Moody’s warned last week that Hungary would risk putting pressure on its Ba1 credit rating, already on a negative outlook, if it takes steps that hurt the banking sector and economic growth.

$1 = 222.32 Hungarian forints Reporting by Gergely Szakacs

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