Hungary Sees 160,000 Borrowers Repaying Franc Loans Early

Hungary anticipates 160,000 borrowers will repay their foreign-currency mortgages at below market rates by the government deadline at the end of this month.

Almost 142,000 households used the plan by the end of January to repay 776 billion forint ($3.5 billion), equal to 1.07 trillion forint at market rates, the country’s financial market authority, known as Pszaf, said in an e-mailed statement today. That repayment leaves banks with a pretax loss of 298 billion forint. A further 19,052 loans with a market value of 145 billion forint are being processed.

Hungary, where households are struggling to repay their loans as the forint weakened, passed legislation in September allowing the early repayment of foreign-currency mortgages at more than 25 percent below prevailing market rates with banks assuming the loss. Households that prove they have the financial means to repay their mortgages have until the end of this month to get rid of their loans.

Hungarians repaid 19 percent of total outstanding foreign- currency credit under the plan, Pszaf said. About 96 percent of the repaid loans were denominated in Swiss francs, according to the watchdog.

Foreign-Currency Loans

Hungarians borrowed in currencies including Swiss francs, euros and Japanese yen mostly from 2003 to 2008, taking advantage of lower interest rates. The forint’s decline since 2008 raised installment payments, the principal and delinquency rates on such loans.

The forint weakened 36.4 percent against the Swiss franc and 13 percent versus the euro from mid-2008.

Local lenders expected total losses of 210 billion forint from the plan, Mihaly Patai, head of the Bank Association, said on Feb. 2.

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

Financial institutions provided 36,980 forint-denominated loans for almost 207 billion forint to customers wishing to refinance foreign-currency mortgages, according to the statement.

The government of Prime Minister Viktor Orban and local banks agreed in December to share costs for forgiving some loans and taking on currency risks for others in the next five years. Under the plan, banks will take losses of as much as 600 billion forint and the government will assume 300 billion forint.

To contact the reporter on this story: Edith Balazs in Budapest at ebalazs1@bloomberg.net

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

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