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Hungary Central Bank Backs Lenders on Mortgage Conversion

Sept. 11 (Bloomberg) -- Hungary’s central bank said it agrees with commercial lenders that the country should avoid the one-time conversion of billions of dollars of foreign-currency mortgages into forint.

“Based on financial-stability considerations,” the bank “opposes any solution that seeks to focus all the burden on one moment,” President Gyorgy Matolcsy told reporters today in Budapest. The bank is awaiting government proposals on how to ease the burden on foreign-currency mortgage holders, though any plan shouldn’t threaten its inflation goal, he said.

Hungarian lenders back the gradual conversion of foreign-currency mortgages into forint to avoid “drastically” weakening the currency and are asking the central bank to provide the funds in tranches, Banking Association Chairman Mihaly Patai said yesterday. Prime Minister Viktor Orban, under pressure from the radical Jobbik party to help borrowers before 2014 elections, has said he wants the issue resolved by Nov. 1.

The central bank is ready to provide funds from its foreign-currency reserves at the daily exchange rate to help lenders convert mortgages, so long as it doesn’t endanger its reserves ratio, Matolcsy told reporters today in Budapest.

The forint was 0.1 percent weaker at 299.55 per euro at 4:05 p.m. in Budapest. It’s risen 0.6 percent in the last six months, the only gainer in that period among 24 emerging-market currencies tracked by Bloomberg.

OTP Bank Nyrt., Hungary’s largest lender, rose 1.2 percent to 4,300 forint. Its share price has tumbled 15 percent since July 16, when a minister said the cabinet would start working on a new relief plan for foreign-currency mortgage borrowers.

Hungarians hold 1.81 trillion forint ($7.4 billion) in foreign-currency mortgages and an additional 1.68 trillion forint in home-equity loans denominated in currencies other than the forint. That equates to 13 percent of economic output, according to data compiled by the European Bank for Reconstruction and Development. About two-thirds of all Hungarian mortgages are denominated in Swiss francs.

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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