OTP Falls Third Day on Orban Loan Plan; Forint Drops to Year-Low

OTP Bank Nyrt. declined for a third day after a suspension yesterday and the forint fell to a year-low as Prime Minister Viktor Orban confirmed a plan to force banks to accept losses tied to foreign-currency mortgages.

OTP fell as much as 8.3 percent and weakened 2.7 percent to 3,638 forint at the 5 p.m. end of trading in Budapest. Hungary’s second-largest mortgage lender Foldhitel es Jelzalogbank Nyrt, or FHB, dropped 3.2 percent to 570 forint, helping to drag the benchmark BUX index 0.3 percent lower. Hungary’s forint depreciated as much as 1 percent to the weakest in a year.

Hungary wants to allow fixing the franc at more than 20 percent below market rates for early repayments, Orban said in parliament yesterday. Austria’s government criticized the measure, which may cause “enormous losses” to banks, according to a letter sent by Finance Minister Maria Fekter to the Hungarian Economy Ministry.

“The step is detrimental to financial stability, while the interference into private contracts decreases the predictability and trust in the economy overall,” analysts at Erste Group Bank AG, including Zoltan Arokszallasi in Budapest, wrote in a research report today. “Banks’ willingness to lend would be lowered from the already suppressed levels. These all worsen the prospects for a Hungarian economic recovery.”

OTP competes mostly with units of international banks, including Erste, Raiffeisen Bank International AG, UniCredit SpA and Bayerische Landesbank, and in mortgages with FHB.

‘Stands Behind’

Hungary’s government “stands behind” OTP and FHB, Orban said yesterday. Foreign-owned lenders are already withdrawing profits and funding from Hungary regardless of the latest plan on loans, he told parliament.

The forint depreciated 0.9 percent to 284.6 against the European common currency, the weakest closing level since Sep. 9. 2010. It slumped 0.9 percent to 236.5 per against the Swiss franc, a third day of declines.

Hungary’s plan may hurt lending, growth and public finances, according to Standard and Poor’s, which rates the country’s debt a step above junk, Frank Gill, a London-based senior director at S&P, said in a telephone interview today.

“Should the Hungarian parliament accept the proposal the forint is likely to suffer once again,” Carolin Hecht, a Frankfurt-based strategist at Commerzbank AG, wrote in a research report today.

Hungarian government bonds maturing in June 2022 slumped for a fourth day, lifting the yield 13 basis points, or 0.13 percentage point, to 7.45 percent.