Hungary Seeks to Limit Mortgage Plan to Guard Stability

Hungary wants to limit the scope of its plan to convert foreign-currency mortgages to forint and implement the program over several years to blunt its effect on banks, Economy Ministry State Secretary Gabor Orban said.

The government wants to shorten the average maturity of 11 years on foreign-currency mortgages, Orban said yesterday. Those amounted to about 1.9 trillion forint ($8.4 billion) at the end of March, central bank data show. Home-equity loans, which Orban said the plan wouldn’t cover, totaled 1.8 trillion forint.

Prime Minister Viktor Orban, facing elections next year, wants to help borrowers of mostly Swiss-franc home loans whose payments soared as the forint dropped during the global credit crisis. Bank stocks plunged last week on concern the government would force lenders to swallow losses in a potential repeat of a 2011 plan that allowed the repayment of loans in a lump sum at below-market rates. The premier ruled that out today.

“There’s no need to expect something similar to the early repayment plan, the comparison is a big stretch,” the ministry’s Orban, who isn’t related to the prime minister, said in an interview in Budapest. “Forint conversion is the main aim. I see a process of several years as being realistic and if we succeed in halving the average maturity, we will already have achieved something.”

OTP Bank Nyrt., Hungary’s largest bank, rose 0.4 percent to 4,556 forint by 2 p.m. in Budapest, extending its gain to 8.5 percent over the past week as officials refined their message about the mortgage plan. The forint strengthened 0.5 percent to 296.36 per euro, snapping a three-day slump.

No ‘Blitzkrieg’

The government wants to avoid a repeat of its 2011 “Blitzkrieg” on banks and has given the Economy Ministry a broad mandate to find a solution, premier Orban said on MR1-Kossuth state radio today.

“Weakening the forint’s exchange rate isn’t part, or wouldn’t be a welcome consequence of, this program,” State Secretary Orban said. More than 40 percent of Hungary’s government debt is denominated in foreign currencies, according to Debt Management Agency data. “The negative consequences of the exchange rate weakening beyond a certain point continue to exist.”

The government doesn’t want to “wreck” the banking industry with the mortgage plan, Economy Minister Mihaly Varga said, the news website Portfolio reported today.

Orban, 34, a former portfolio manager at Aegon Fund Management, said officials were given “several months” to find a “solution that’s good for everyone.” The plan needs to be implemented at some point this year, he said.

OTP, Rivals

OTP competes with mostly foreign banks, including KBC Groep NV (KBC), Bayerische Landesbank, Erste Group Bank AG (EBS), Intesa SanPaolo SpA (ISP), Raiffeisen Bank International AG (RBI) and UniCredit SpA. (UCG) The first negotiations between government and banks took place yesterday, Orban said.

The government is under constant pressure to find a solution. Jobbik, a radical nationalist party, yesterday criticized it for negotiating with banks.

The cabinet effectively banned foreign-currency mortgage lending after assuming power in 2010 and introduced the early-repayment plan in 2011. It also created an “exchange-rate barrier” mechanism to keep installments fixed, which is used by about 40 percent of eligible borrowers.

The measures, along with Europe’s highest bank levy, turned the industry unprofitable, contributed to a plunge in lending and were among the reasons Hungary lost its investment-grade credit rating.

Government ‘Openness’

Hungarian households still hold more than 510,000 foreign-currency mortgage contracts, including 284,000 home-equity loans, according to central bank data.

There is an “openness” in the government to share the costs of a new “sensible plan” to help mortgage borrowers, Orban said. That can’t threaten Hungary’s goal of keeping its budget deficit within 3 percent of economic output to remain outside the European Union’s excessive-deficit procedure for fiscal offenders, he said.

Hungary exited the monitoring this year for the first time since joining the trading bloc in 2004.

The government will consult with the central bank because it’s “possible” that the regulator may also have a role in converting foreign-currency loans into forint, Orban said.

“Whatever plan is decided on, it should have a ‘‘different logic’’ for performing and non-performing loans and must avoid creating a moral hazard, Orban said.

The government also has to ‘‘support and help’’ those who borrowed in forint, Varga said, according to Portfolio. There were 596 billion forint of these loans outstanding by the end of March, according to central bank data.

To contact the reporters on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net; Edith Balazs in Budapest at ebalazs1@bloomberg.net

To contact the editors responsible for this story: James M. Gomez at jagomez@bloomberg.net; Balazs Penz at bpenz@bloomberg.net

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