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New ways of transferring bank portfolios

On 15 March 2014 new Civil Code entered into force in Hungary1. Under the previous Code, which lived for more than 50 years, the party to a contract could be changed by the combination of assignment and assumption of liability. Although, the courts tended to accept this practice, it had long been argued whether it was really possible to achieve a complete change of contractual position by using this method. The new Civil Code solved this problem by expressly allowing for the transfer of contract. The transfer of contract is a trilateral agreement between the parties to the original contract and the entering party. Beside these three parties, the provider of any security must also be involved; otherwise the security ceases to exist.

The Hungarian Banking Act2 also made it possible that banks transfer their deposit portfolios to other credit institutions by entering into an assignment and assumption of liability contract. In order to be valid, such a transfer would have to be approved by the National Bank of Hungary, but the consent of the depositor was not necessary. Since July 2015, this provision of the Banking Act has been extended to other type of banking portfolios, namely current account, credit, financial leasing and factoring contracts, provided the portfolio consists of at least twenty contracts or contracts representing at least 10 billion HUF capital sum. In the same way as in case of deposit portfolios, the consent of the clients is not required, but banks have to give prior notice to them about the planned transfer, and the clients are entitled to terminate the contract without any cost, but with the consequence that all of their obligations become due.

To make life easier for banks, unlike in the case of transfers under the Civil Code, the securities of the contract do not cease to exist in the course of transfer; all rights and obligations arising from collaterals devolve to the entering party. In addition, the entering credit institution is entitled to initiate the amendment of the terms of the contract; however, this may not affect interests, fees and other costs of the contract in a way which is disadvantageous to the client.

Financial institutions are not only entitled to transfer complete contractual positions, they may also assign claims arising from their loan portfolio. Such assignments may only be made to other financial institutions, and with the approval of the National Bank. Unlike in case of transfer of contracts, under the Civil Code in case of assignment the security rights related to the assigned claims are also transferred to the assignee. The Banking Act clarified and simplified the ways in which Hungarian financial institutions may transfer their deposit and loan portfolios to other institutions

  1. Act V of 2013.
  2. Act CCXXXVIII of 2013 on credit institutions and financial enterprises.