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Hungary Delays FX Mortgage Plan on Legal Uncertainty

Hungary’s government, which threatened banks with a plan to phase out billions of dollars of foreign-currency mortgages, will delay presenting the measures because of potential legal obstacles.

“If courts in the coming weeks and months pass rulings that would allow, say, a government decision to be contested, then we won’t have done anything,” Economy Minister Mihaly Varga said today in Budapest. “We need to be cautious and the coming period will be about seeking legal clarity.”

Hungarians have struggled with mortgages borrowed in foreign currencies since the forint plunged during the economic crisis. Prime Minister Viktor Orban, who faces elections in 2014, has promised to phase them out and lower monthly payments. Varga said earlier this week that the government would unveil its plan in early November after rejecting proposals from banks.

OTP Bank Nyrt., Hungary’s largest lender, fell 0.5 percent to 4,477 forint by 12:32 p.m. in Budapest. It’s tumbled 11 percent since the government said July 16 that 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.

In a test case, Hungary’s top court ruled in favor of OTP in July in a lawsuit that disputed the validity of a foreign-currency mortgage contract. The court also retroactively changed some of the agreement’s conditions. The verdict hasn’t stopped borrowers from launching legal action, producing what Varga called “contradictory” rulings.

Swiss Loans

Hungarians held 1.81 trillion forint ($8.4 billion) in mostly Swiss franc-denominated mortgages at the end of June and an additional 1.68 trillion forint in foreign-currency home-equity loans, which can be used for purchases other than homes, central bank data show.

Borrowers’ monthly payments soared after the forint plunged against the franc during the crisis, with a fifth of loans now non-performing, according to central bank data. They account for 13 percent of GDP, according European Bank for Reconstruction and Development data.

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

To contact the reporter on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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