By Margit Feher

BUDAPEST--Austrian lender Raiffeisen Bank International AG (RBI.VI) decided Wednesday against selling its unprofitable Hungarian unit Raiffeisen Bank Zrt. for now.

"Over the last few weeks, RBI carefully reviewed the offers it received for its Hungarian subsidiary. After comprehensively reviewing the last offer, RBI decided, at present, not to pursue the sale of the Hungarian subsidiary under the current conditions," RBI said in a release, without providing further details.

According to Hungarian press reports, the government had been in talks with RBI about buying its Hungarian arm.

Hungary is not under pressure to buy any bank, Economy Minister Mihaly Varga said on state television Tuesday night.

Raiffeisen's Hungarian unit, Hungary's sixth largest bank by total assets, generated a net loss of 25.6 billion forints ($116.2 million) in the first half of last year due to provisioning on possible losses mostly on foreign-currency lending to households and on other bad loans, about the same amount of loss as a year earlier.

Investors were watching the possible deal closely to see if Hungary would inject capital into the bank after the purchase since that may have tipped the country's 2014 budget. Hungary needs to keep its budget deficit within the European Union limit of 3% of gross domestic product to continue to receive vital EU funds. The government projects the deficit was not wider than 2.7%% of GDP in 2013.

The purchase could have helped Hungarian Prime Minister Viktor Orban, who is seeking re-election for a second term in four months, deliver on his goal to return at least half of Hungarian banks back to local hands. The purchase could have increased Hungarian ownership in the banking sector's total assets to near 50% from 42% at the end of 2012.

The sector is now dominated by foreign lenders, mostly from the euro zone, after privatizations that followed the collapse of communism in Central Europe in 1989. Most of Hungary's banking sector is owned by foreign lenders including Italy's Intesa San Paolo SpA (ISP.MI), UniCredit SpA (UCG.MI), and Belgium's KBC Group N.V. (KBC.BT).

Four large banks owned by foreign parents may soon be on sale in Hungary soon, Hungarian central bank Governor Gyorgy Matolcsy said in December.

Hungary has been uneasy about its reliance on foreign funding despite banks pumping capital into their Hungarian units to shore up their finances. Banks channelled 1.37 billion euro ($1.86 billion) into their Hungarian operations in 2012, up from EUR695.8 million in 2011, accounting for the lion's share of the EUR3.76 billion foreign direct investment in Hungary in 2012.

Banks operating in Hungary have chalked up significant losses in recent years primarily due to the Hungarian government's special bank-sector taxes and a massive amount of foreign-currency loans turning sour.

Hungary was to allow a small, partly state-owned bank Szechenyi Kereskedelmi Bank Zrt. to practically re-nationalize Raiffeisen's Hungarian subsidiary. The state holds a 49% stake in Szechenyi Bank, which has only one branch office. The majority stake in the bank is held by Hungarian firm T&T, owned by Istvan Torocskei, who also heads the country's state debt management center AKK.

Szechenyi is one of the smallest banks in Hungary; its total assets were HUF19.63 billion at the end of 2012, the latest date for which data is available, as against the HUF1.867 trillion in total assets of Raiffeisen's Hungarian unit at the end of June 2013.

Write to Margit Feher at margit.feher@wsj.com

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