Hungary Focuses on Exchange Rate in Potential Mortgage Overhaul

Hungary’s potential new legislation to retroactively rewrite foreign-currency loan contracts will probably focus on the losses borrowers incurred from exchange-rate movements, the Justice Ministry said.

“The Justice Ministry is examining how the bank contracts may be rewritten via legislation by citing a fundamental change in the circumstances,” it said in an e-mail today. “Such a circumstance justifying the modification of the contract is primarily the exchange-rate differential.”

Shares in Hungary’s largest lender OTP Bank Nyrt. fell and the forint weakened after Justice Minister Tibor Navracsics said two days ago that the cabinet was considering such legislation. The government’s aim is to help Hungarian home buyers who borrowed mainly in Swiss francs for years to take advantage of lower interest rates until a drop in the country’s currency sent repayments soaring and stoked bad debt.

Clients “can’t be faulted” if they are unable to repay their debt because of an “external” reason such as the spike in the exchange rate, the ministry said, adding that the cabinet will discuss the possible solutions on July 24.

OTP fell 4.4 percent to 4,635 forint by 12:22 p.m. in Budapest, extending its decline in the past two days to 7.9 percent, the most in nine months. The forint depreciated 0.8 percent to 294.75 per euro, its weakest since July 9.

Forint Swings

That decline pared the forint’s gain in the past three months to 1.3 percent, still the best performance among 24 emerging-market currencies tracked by Bloomberg. It plunged 15 percent, the most in the world, in the second half of 2011 when the government announced plans to allow the temporary early repayment of foreign-currency loans at below-market exchange rates, forcing lenders to swallow losses.

The options the government is now considering include cutting borrowers’ costs from forint weakening or eliminating them altogether, the Budapest-based newspaper Magyar Nemzet reported today, citing unidentified people with knowledge of the proposals. Banks may have to incur all or part of the costs from the overhaul, the newspaper said.

To contact the reporters on this story: Andras Gergely in Budapest at agergely@bloomberg.net; Zoltan Simon in Budapest at zsimon@bloomberg.net

To contact the editor responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net

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