Hungary plans no “dramatic” measures to help foreign-currency borrowers, the acting head of the banking lobby said as investors seek clarity amid an overhaul of policy making leadership and a weakening forint.
“I see no large-scale, short-term, half-baked policy proposals today that would have turbulent consequences,” Daniel Gyuris, the acting head of the Hungarian Banking Association, said by phone yesterday. Talks with Prime Minister Viktor Orban’s Cabinet were focused on overdue mortgages and the government hasn’t signaled plans to convert all foreign-currency loans into forint, he said.
Commercial lenders are working on a “complex” plan to help as many as 80,000 debtors who are more than 90 days overdue with their repayments and may present their proposals to the government within a week, daily Nepszabadsag reported today, without saying how it obtained the information. Under the plan, banks would either convert the loans to forint and forgive part of the outstanding debt or write down some of the foreign-currency denominated debt, making borrowers eligible to join an ongoing currency cap protection program, according to the report.
Hungary temporarily allowed the early repayment of foreign-currency mortgages at below-market rates in 2011, forcing lenders to swallow losses. That, along with Europe’s highest bank levy made the industry unprofitable for the first time in 13 years. Hungary needs to fix its foreign-currency loan “problem” to free up its exchange-rate policy, Orban said on March 12.
The forint plunged 6.3 percent against the euro in the past three months, the most among more than 20 emerging-market currencies tracked by Bloomberg. It gained 0.2 percent to 304.9 per euro by 9:22 a.m. in Budapest even amid concern that Cyprus’s planned bailout may aggravate Europe’s debt crisis. OTP Bank Nyrt., Hungary’s largest bank, gained 1.5 percent to 4,488 forint, snapping a two-day decline.
“It’d be a relief to know if this was the definitive foreign-currency loan plan and if this affected a relatively limited amount of loans,” Sandor Jobbagy, a Budapest-based analyst at CIB Bank Zrt., a unit of Intesa Sanpaolo SpA, said by phone. He said the “major question” is whether the central bank plans to tap foreign-currency reserves for any such plan.
The central bank declined to comment, citing a policy to refrain from public statements in the week before interest-rate decisions, the Magyar Nemzeti Bank’s press office said in an e-mail yesterday.
MNB President Gyorgy Matolcsy, who took over the institution this month, will preside over his first rate decision on March 26. As Economy Minister, Matolcsy spearheaded the government’s self-described unorthodox policies such as the nationalization of private pension funds and the retroactive taxing of large companies including banks, which pushed the economy into a recession last year, damaged lending, hurt investments and cost the country its investment grade.
Hungarian households amassed 4 trillion forint ($16.8 billion) in foreign-currency mortgages as of Jan. 31, of which 1.1 trillion forint were more than 90 days overdue, according to data from the financial market authority PSZAF.
Hungarians borrowed predominantly in Swiss francs to take advantage of lower interest rates until a forint drop following the 2008 collapse of Lehman Brothers Holdings Inc. sent repayments soaring and boosted the ratio of bad debt.
The Cabinet wants banks to convert foreign-currency mortgages to forint and forgive part of the debt for borrowers with payments overdue more than 90 days, news website Nol reported March 6, without saying how it got the information. The central bank may help lenders get access to foreign currency from its reserves, Nol said.
Hungary will “obviously talk about this,” Economy Minister Mihaly Varga told TV2 March 4 in response to a question whether the Cabinet and the central bank will tap foreign-currency reserves to stimulate the economy and help mortgage holders. He added that decisions about using reserves belonged to the central bank. Varga was still the minister-designate then. The Economy Ministry didn’t respond to e-mailed questions yesterday.
The government plans steps in the first half of this year to help companies convert foreign-currency loans into forint, Orban said March 12, adding that budget constraints had prevented the Cabinet from introducing measures earlier.
The government hasn’t indicated any such plan in talks with lenders, Gyuris said, adding that a solution for overdue home loans would be “market-based.” Deploying entirely new tools to help foreign-currency borrowers would pose a risk to financial stability and the government probably won’t push banks onto an “unpredictable path,” he said.
“It’s uncertain whether the government will engage in such deep unorthodoxy as the early repayment scheme was,” Zoltan Torok, a Budapest-based economist at Raiffeisen Bank International AG, said by phone.
The government may show self-restraint when devising measures to help foreign-currency borrowers as it needs banks to prop up lending and lead the economy out of recession, Concorde Securities Zrt. said on March 6.
That contrasts with the assessment of Capital Economics Ltd., which on March 18 forecast that Hungary would “most likely” impose haircuts on mortgage loans as well as small- and medium-sized company debts, with the central bank shouldering part of the cost from its foreign-currency reserves.
“We’ve seen a lot of packages and plans” from the government that were “preceded by a lot of comments and speculation,” Jobbagy of CIB said. “The market now wants to hear from the central bank.”