Hungarian Economy Ministry State Secretary Gabor Orban comments on the government’s plans to help foreign-currency borrowers and the outlook for the economy. He spoke in an interview in Budapest yesterday.
On the potential plan to help foreign-currency mortgage borrowers:
“The government views the phasing out of foreign-currency mortgage loans as a financial and not a legal question. Just as the stability of the legal system shouldn’t be at risk from a bad financial product or model, the safe functioning of the financial system also shouldn’t be at risk from a bad legal solution. These aren’t invalid contracts, but bad products that don’t belong in the financial portfolio of households.
‘‘There’s no need to expect something similar to the early repayment plan, the comparison is a big stretch. The two don’t show any relation in spirit.”
On the scope of the program:
“The logic has to be different for performing and non-performing loans. The first step, i think, is to separate these two. Our aim is to make sure that this doesn’t, under any circumstance, brings about a strengthening of excessive risk taking or abuses.
‘‘The program would cover mortgages, not home-equity loans. From an economic-policy perspective, we are of course trying to help foreign-currency borrowers, but we must also see that we can’t endanger other people’s savings or loans through helping them.”
On the effects on financial stability:
“We’re not yet at the point in our discussions to know what is acceptable politically and for society and also possible to execute from the point of view of financial stability. The past three years showed that try as we might with different solutions, the basic problem is with this product. Unfortunately, the clients weren’t prepared for it, perhaps the banks weren’t prepared for it, while the supervising authority didn’t sufficiently execute its consumer-protection role. What I can definitely say is that the phasing out of foreign-currency loans will be a process measured in years.”
On the effect on forint borrowers:
“The government’s basic expectation of the solution is that forint borrowers can’t be worse off is a general principle. We don’t consider it an expectable requirement for the bank to calculate this to the last penny for every client.”
On the timing of the program:
“In this program, we have to aim for this product to be phased out as soon as possible, because of the excesses of foreign-currency based housing loans -- the sense of justice in all of us dictates that this product wasn’t fair in every respect. Our current goal is to have discussions with all the involved parties. In the coming weeks, we’ll have talks with the civic organizations of foreign-currency mortgage borrowers as well as the Banking Association.
‘‘I think forint conversion would be the main track, but we’re not exactly talking about the full volume being in forint by the middle of next year, but about accelerating this phasing out. Say, the last foreign-currency loan shouldn’t disappear in 11 years, but less than that.
‘‘What helps in working out the construction is that we have several months to build a solution with the participation of the involved parties that is satisfactory to everyone.
‘‘The government wants to start the program within a reasonable deadline, we absolutely have to start the process this year. We have to aim for closing this issue as soon as possible. But it must be seen that, obviously, we started the discussions because there are market risks that the government needs to evaluate. It’s obviously in nobody’s interest for the banking system’s stability to be shaken or tipped over. The Hungarian banking system is stable, meaning that there’s no bank in Hungary that wouldn’t meet capital requirements. At the same time, it’s a question how a foreign owner behaves if it incurs losses on the closing of a contract. From that perspective, there’s a risk that the Hungarian state would have to participate in helping a bank. This is something we don’t want to risk. That’s partly why we are talking to the financial institutions, to find out what fits into the maneuvering room they have.
On the future of the exchange-rate barrier plan:
‘‘For the question of the exchange-rate barrier, we can’t exclude that there would be some sort of solution for the period after the deadline.
‘‘This would be a co-ordinated and directed process, in which the clients would be transferred to forint after some time without their payments rising.”
On the role of the central bank:
“We definitely have to have discussions with the Magyar Nemzeti Bank, since it’s possible that the central bank will have a role in the process.”
On the effect on the banking industry:
“Our experience shows that the banking industry can better live with the burdens that are spread out over time. Therefore, we aren’t looking for a solution that would suddenly change the whole thing in a radical way.”
On the forint’s exchange rate:
“Weakening the forint’s exchange rate isn’t part, or wouldn’t be a welcome consequence of this program. The corporate debt stock and the government’s open position continues to necessitate the forint’s exchange rate to not be viewed as a policy variable that can be used without limits.
‘‘The negative consequences of the exchange-rate weakening beyond a certain point continue to exist and that will continue to be the case after the package.
‘‘The banks will have to wind down their remaining foreign-currency positions after the program and that can be done by the central bank or the banks themselves on the market. The latter is possible if the solution happens in a very gradual way.
On the program’s effect on the budget:
‘‘The solution must take into account the ability of every involved party to take on burden and the government’s ability to take on burden is clearly staked out by the excessive deficit in the European Union sense. There’s an openness from the government’s side to take some part in this program if we can find a sensible solution.”
On the outlook for the economy:
“Based on what we’re seeing now, there won’t be a need for further measures to reach this year’s budget target. This year’s risks were dealt with in a final way by the two-rounds of measures.
‘‘Based on the incoming data, we may adjust the growth forecast a bit higher and the inflation forecast a bit lower and the two together will have a neutral effect on the tax base.”