Hungary Sees More Loan Steps as Banks Book $151 Million Loss

Hungary’s government is working with local lenders on further measures to help foreign-currency borrowers after banks booked more than 33 billion forint ($151 million) in losses on such loans under a Cabinet plan.

“Our aim is to find joint solutions that will take the burden of foreign-currency risk off families,” Economy Minister Gyorgy Matolcsy said at a press conference in Budapest today after a meeting with the head of the Banking Association. The government pledged not to implement further measures before a deal with local lenders, Matolcsy said.

Hungarian lawmakers approved legislation on Sept. 19 that allows early repayment of Swiss-franc denominated mortgages, which account for two thirds of such loans, at more than 20 percent below market rates, forcing lenders to swallow losses. Domestic banks turned to the Constitutional Court and the European Union said the plan may breach the bloc’s rules.

Hungarian banks may book another 71 billion forint in losses based on indications submitted so far, Karoly Szasz, the chairman of financial regulator PSZAF, said at the same press conference. Households have repaid 133.8 billion forint in such loans and have applied for the early repayment of more than 295 billion forint through Oct. 23, Szasz said.

‘Complex Package’

The plan allows borrowers to repay foreign-currency mortgages in a lump sum at a fixed exchange rate of 180 forint per Swiss franc and 250 forint per euro, provided they were taken out at lower exchange rates. Borrowers have until the end of the year to submit their applications for early repayment.

The forint strengthened 0.9 percent to 303.6 per euro by 2:23 p.m. in Budapest, paring losses to 8.8 percent since Sept. 9, when the ruling Fidesz party proposed the early repayment plan. Hungary’s currency has depreciated 44 percent against the Swiss franc since July 2008.

Local lenders will present a “complex package” of proposals on foreign-currency loans in two weeks, Mihaly Patai, head of the Banking Association, said at the same press conference.

Households are struggling to repay franc-denominated mortgages after the advance of the Alpine country’s currency boosted repayments and triggered defaults.

Repayment Estimates

The central bank expects 20 percent of the 5 trillion forint in foreign-currency mortgages will be repaid under the plan, causing banks losses of 207 billion forint, excluding foreign exchange impact, according to the bank’s Report on Financial Stability published yesterday. Applications for early repayment may surge in late November and early December after a leveling out period, Szasz said.

OTP Bank Nyrt., Hungary’s largest lender, competes mostly with units of international banks including Erste Group Bank AG (EBS), Raiffeisen Bank International AG (RBI), UniCredit SpA (UCG), Bayerische Landesbank AG, KBC Groep NV (KBC), and Intesa Sanpaolo SpA. (ISP)

Raiffeisen’s Hungarian unit may lose as much as 22 billion forint on the early repayment plan, Ferenc Szabo, deputy chief executive, said on Oct. 26. Erste, eastern Europe’s second- biggest lender, was the first foreign bank to recapitalize its Hungarian unit by injecting 600 million euros into the subsidiary.

To contact the reporters on this story: Edith Balazs in Budapest at ebalazs1@bloomberg.net; Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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