Forint Drops to Record Low Against Franc on Debt; Polish Zloty Depreciates
Forint Drops to Record Low Against Franc
Balint Porneczi/Bloomberg
An employee counts Hungarian forint notes at a bar in Budapest, Hungary. The Hungarian and Polish currencies both lost as much as 1.7 percent to the weakest against the franc.
An employee counts Hungarian forint notes at a bar in Budapest, Hungary. The Hungarian and Polish currencies both lost as much as 1.7 percent to the weakest against the franc. Photographer: Balint Porneczi/Bloomberg
The forint and zloty slid to record lows against the Swiss franc and Hungarian stocks lost the most in three months on concern the euro-area’s debt crisis may cause emerging European economies to slow and lenders to pull out.
The Hungarian and Polish currencies both sank as much as 1.7 percent to their weakest levels against the franc since Bloomberg started tracking the data more than 13 years ago. The BUX equity gauge slumped 3.7 percent in Budapest, the most since April 18. Warsaw’s WIG20 index slid 2.6 percent.
The euro-region’s debt crisis threatens to hurt the export- led economic recovery in the European Union’s east, according to Morgan Stanley and Royal Bank of Scotland Group Plc. The risk that western lenders will reduce their presence in the region is another spillover from the debt crisis, they said.
“Risks of contagion from the euro area are rising,” Pasquale Diana, a Morgan Stanley economist in London, wrote in a report today. “The central and eastern European currencies will depreciate aggressively versus the dollar, Swiss franc and yen in the event that we see more serious contagion.”
Stocks fell around the world, led by banks, and the euro weakened to a record against the franc as European stress tests failed to allay concern the debt crisis will deepen. The MSCI All-Country World Index of developed and emerging countries fell 1.4 percent.
The forint traded 1.4 percent weaker at 237.707 per franc as of 5:28 p.m. in Budapest and was 1.2 percent lower at 272.94 per euro. The zloty depreciated 1 percent to 3.5179 per franc and slid 0.6 percent to 4.0376 per euro. OTP Bank Nyrt., Hungary’s largest lender with a 30 percent weighting in the BUX index, sank 4.9 percent to 5,231 forint, the most in eight months.
‘Vulnerable’
The cost of insuring government bonds of Hungary, the EU’s most-indebted eastern member, rose to the highest since January at 323 basis points, up 13 basis points. Credit-default swaps increase as perceptions of creditworthiness deteriorate. Contracts for Poland climbed seven basis points to 175 basis points, a 13-month high.
“Significant foreign -- west European -- ownership of local banking sectors across emerging Europe does leave the region vulnerable to contagion,” Timothy Ash, head of emerging- market research at RBS, wrote in a report. “The key channel of the transmission could be real economy and trade.”
More than 70 percent of the banking industry in the Czech Republic, Romania, Hungary and Poland had foreign owners as of 2010, according to RBS. UniCredit SpA, Erste Group Bank AG, Raiffeisen Bank International AG and Societe Generale SA are among the biggest lenders by assets in the former communist bloc.
‘Red Alert’
“If these banks retrenched, the already modest credit recovery we are seeing could prove even weaker,” Morgan’s Diana said. The region is also susceptible to “the obvious contagion from financial markets,” Diana said.
A weaker forint hurts homeowners who bought property with foreign-currency loans because they pay more in local terms. Sixty-three percent of Hungarian household mortgages were denominated in foreign currencies as of April 30, and more than 100,000 mortgages were overdue, according to central bank data.
“The Swiss franc rally will keep the central banks in Poland and Hungary on red alert,” emerging-market strategists at BNP Paribas SA, led by Bartosz Pawlowski in London, wrote in a research note.
‘Considerable Burden’
The government in Hungary, which received an international bailout in 2008, pledged to protect foreign-currency borrowers who are unable to make payments as a result of the forint’s weakening. Prime Minister Viktor Orban’s administration and banks in May agreed to temporarily fix the franc’s exchange rate on household mortgages at 180 forint until the end of 2014. The program shifts a “considerable burden” to banks in the form of falling profits, Frankfurt-based DZ Bank AG said May 23.
OTP has lost 13 percent since Orban presented the mortgage plan on May 30 and said he intended to keep a special tax on the financial industry beyond its 2012 expiration. The forint has weakened 7.6 percent versus the franc in the period.
Polish banks won’t be hurt by gains in the franc, the most popular currency for mortgages in Poland, as most borrowers pay instalments on time, the country’s financial regulator said this month. The EU’s biggest economy in eastern Europe restricted non-zloty borrowing in January, limiting the maximum monthly payment on foreign-currency loans to 42 percent of a customer’s net income and requiring homebuyers to make a 20 percent downpayment.
To contact the reporter on this story: Andras Gergely in Budapest agergely@bloomberg.net; Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net
To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net
Rate this Page