Erste Optimistic on Hungary Deal as Cabinet Discusses FX Loans

Erste Group Bank AG (EBS), the owner of Hungary’s second-largest lender, is optimistic about reaching a deal with the country’s government on phasing out billions of dollars of foreign-currency mortgages.

“We are quite confident that we can find a negotiated, reasonable solution for this issue in the next four weeks,” Andreas Treichl, Chief Executive Officer of the Vienna-based bank, said in a conference call today. He added that regulatory risk in Hungary changes “on a weekly basis.”

Hungarian Prime Minister Viktor Orban, facing 2014 elections, has promised to phase out foreign-currency mortgages and lower monthly installments for borrowers whose payments spiked when the forint plunged in the economic crisis. Economy Minister Mihaly Varga rejected proposals this week from lenders on the topic and said the government would unveil its own plan in early November. The cabinet is scheduled to discuss it today.

OTP Bank Nyrt., Hungary’s largest lender, rose more than 1 percent to 4,504 forint by 11:31 a.m. in Budapest. The lender has tumbled 11 percent since the government on July 16 said it’s considering a new debt-relief plan. Banks lost $1.7 billion during a 2011 program and reacted by pulling out capital equal to 23 percent of Hungary’s gross domestic product and cutting new lending.

OTP competes with mostly foreign-owned banks including Erste, UniCredit (UCG) SpA, KBC Groep (KBC) NV, Intesa SanPaolo (ISP) SpA and Raiffeisen Bank (RBI) International AG.

Soaring Installments

Hungarians held 1.81 trillion forint ($8.5 billion) in foreign-currency mortgages at the end of June and another 1.68 trillion forint in foreign-currency home-equity loans, which can be used for purchases other than homes, according to central bank data.

Borrowers’ monthly installments soared after the forint plunged against the franc during the crisis. A fifth of these loans is now non-performing, according to central bank data. The loans account for 13 percent of Hungary’s GDP, according European Bank for Reconstruction and Development data. About two-thirds of mortgages are denominated in Swiss francs.

Hungarian lenders proposed the government expand a program allowing borrowers to temporarily repay mortgages at fixed, below-market exchange rates for five years, with the government and banks splitting the interest-rate costs, Origo news website reported yesterday, citing an unnamed person with knowledge of the plan. Banks also offered to forgive part of the capital portion above the fixed exchange rate, Origo said. Details of the banks’ proposals haven’t been made public.

‘Cautiously Optimistic’

Clients, banks, and the government should all contribute to a solution, said OTP Deputy CEO Antal Kovacs, adding that he was “cautiously optimistic” that would happen.

The government plans to phase out foreign-currency mortgages over the next three-to-five years and cut borrower’s monthly payments by as much as 20 percent, Varga said on Oct. 25, without revealing details of his plan.

“The government’s proposal will likely incorporate a lot more of lenders’ proposals than either side will be willing to admit,” Otilia Dhand, an analyst at London-based Teneo Intelligence, said in an e-mail. The government’s aim “is to address the long-term problem of foreign-currency lending as much as to boost its own popularity ahead of the 2014 general elections.”

To contact the reporters on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net; Boris Groendahl in Vienna at bgroendahl@bloomberg.net

To contact the editor responsible for this story: Hellmuth Tromm at htromm@bloomberg.net

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