The financial sector in Hungary is an essential part of the country’s economy, with banks playing a critical role in providing financial services to individuals and businesses. The Hungarian banking system has experienced both growth and challenges over the years, with risk factors including economic downturns, regulatory changes, and fluctuations in the global market. To safeguard the interests of retail depositors and small businesses, the Deposit Guarantee Scheme of Hungary (DGS) was established as a protective measure against bank failures.
Bank deposit insurance is a safety net for retail depositors and small businesses, designed to protect their deposits in the event of a bank failure. By ensuring the reimbursement of deposits up to a certain limit, deposit insurance helps maintain confidence in the banking system and reduces the risk of bank runs. This financial stability is crucial for sustaining economic growth and promoting financial inclusion.
The National Deposit Insurance Fund of Hungary (NDIF) is the institution responsible for administering the Deposit Guarantee Scheme in Hungary. Located in Budapest, the NDIF is an independent legal entity operating under the supervision of the Central Bank of Hungary. Its mandate, as defined by the Hungarian Act on the National Deposit Insurance Fund, is to protect depositors by providing deposit insurance coverage and contributing to the stability of the financial system.
Working of the Deposit Guarantee Scheme of Hungary
The Deposit Guarantee Scheme of Hungary is triggered when a bank is declared unable to meet its obligations towards depositors, as determined by the Central Bank of Hungary or a court. The definitions of this trigger include insolvency, a moratorium on payments, or the withdrawal of the bank’s operating license.
The claim filing procedure begins with the NDIF notifying eligible depositors about the failure of their bank and providing information on the reimbursement process. Depositors are not required to file claims individually, as the NDIF initiates the reimbursement process automatically. Eligible depositors include individuals, small businesses, and non-profit organizations, while financial institutions, public authorities, and larger companies are generally ineligible for DGS coverage.
The maximum insured amount under the Deposit Guarantee Scheme of Hungary is EUR 100,000 per depositor per bank. Temporarily high account balances may also be covered in specific cases, such as the sale of real estate, inheritance, or insurance payouts, for up to 12 months from the date the funds were deposited.
In case a claim is ineligible for deposit insurance coverage or gets rejected, depositors may seek legal remedies by filing a lawsuit against the failed bank or appealing to the relevant authorities.
Bank Failures in Hungary: Lessons for Account Holders
Over the past two decades, the Hungarian banking sector has witnessed a few bank failures, such as the collapse of K&H Equities and the closure of Quaestor Bank. These incidents serve as a reminder for account holders to stay informed about the financial health of their banks and the protections offered by the Deposit Guarantee Scheme of Hungary.
While the DGS provides a safety net for depositors, there are other avenues to recover money in case of bank failures. Under Hungarian law, depositors may file claims as creditors during the bank’s resolution or liquidation process. The Central Bank of Hungary oversees the resolution process, while the liquidation process is managed by a court-appointed liquidator.