OTP Bank Nyrt., Hungary’s largest lender, dropped the most in 15 months as the cabinet announced plans to retroactively amend the terms of foreign-currency loans, opening the doors for a hit on earnings.
The shares declined 4.7 percent to 4,620 forint by the end of trade in Budapest, the biggest plunge on a closing basis since April 2012 and extending their loss over two days to 8.2 percent. Turnover amounted to almost four times the three-month daily average. The BUX stock index retreated 2.3 percent and the forint weakened 0.7 percent to 294.8 per euro, the worst performance among the 24 emerging-market currencies tracked by Bloomberg.
Prime Minister Viktor Orban’s cabinet is looking at the possibility of retroactively modifying the conditions of foreign-currency loans, the Justice Ministry said by e-mail today. The legislation will probably focus on changes in exchange rates, which resulted in borrowers’ inability to repay, the ministry said. Banks may have to bear part or all of the costs, newspaper Magyar Nemzet reported today.
“The market fears steps causing additional losses for the banking system in an already not-too-favorable lending and growth environment,” Karoly Bamli, a Budapest-based currency trader at Commerzbank AG, wrote in an e-mail today. “The news is having a negative impact on the forint.”
OTP plunged 36 percent and the forint weakened 12 percent in 2011, when the government forced banks to take losses by allowing clients to repay foreign-currency loans early at below-market rates. Hungarian households had 3.73 trillion forint ($16.5 billion) in foreign currency loans as of the end of March, according to central bank data.
In addition to introducing the temporary early-repayment plan two years ago without consulting lenders, the government has devised programs in coordination with banks. Under one, which ended in September, banks converted non-performing foreign-currency loans into forint and wrote down a quarter of the debt in exchange for deducting some losses from a bank levy.
The government’s reliance on “ad hoc” measures and frequent changes in the regulatory environment make planning “impossible” for the economy, the Hungarian European Business Council, which groups 14 local chief executives of multinational companies, said in a statement today.
Orban’s measures also criticized as “ad hoc” by the International Monetary Fund included the introduction of special taxes on industries including banking, telecommunications and energy. Orban has taken over $13 billion in privately managed pension assets since taking office in 2010 to help cut public debt.
The cost of insuring against default on Hungary’s debt with credit-default swaps rose four basis point to 292. Yields on the government’s benchmark 10-year forint bonds rose six basis points, or 0.06 percentage point, to 5.8 percent, adding to a nine basis point increase yesterday.