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Hungary to Use Temporary Measures to Aid FX Borrowers

Hungary’s ruling party proposed aiding foreign-currency mortgage borrowers using existing tools after legal obstacles delayed new assistance measures.

Fidesz suggested opening a plan allowing temporary repayment of loans at fixed, below-market exchange rates to all borrowers, parliamentary leader Antal Rogan told reporters today in Budapest. Fidesz, which controls a two-thirds majority in the legislature, wants the bill approved tomorrow, he said.

Hungarians have struggled with billions of dollars of foreign-currency mortgages as the forint plunged during the economic crisis. While Prime Minister Viktor Orban, who faces elections in 2014, has vowed to phase them out and trim monthly payments, Economy Minister Mihaly Varga said last week that a cabinet plan to address the issue would be delayed because of “contradictory” court rulings on housing loans.

“Investors are beginning to price out a worst-case scenario” about a government plan to help foreign-currency borrowers, David Sandor, Budapest-based analyst at KBC Securities, said by phone. “This may only be a first step but the market no longer expects something really radical.”

OTP Bank Nyrt., Hungary’s largest lender, rose 0.7 percent to 4,550 forint by 12:27 p.m. in Budapest. It’s dropped 9.5 percent since the government said July 16 that it’s considering a new debt-relief plan. Banks lost $1.7 billion during a 2011 program and reacted by pulling out capital equal to 23 percent of Hungary’s gross domestic product and cutting new lending.

Wider Access

Fidesz’s move would let an additional 150,000 borrowers with debts more than 90 days overdue join a plan that fixes Swiss franc-mortgage repayments at 180 forint per franc, less than today’s 239.9 rate, Rogan said. The balance between the two rates accumulates in a separate account, with banks and the government splitting interest costs on the difference.

So far, 40 percent of eligible borrowers have signed up. Lenders want to make the program obligatory for five years, with the government, banks and borrowers splitting the cost, OTP’s Deputy Chief Executive Officer Laszlo Wolf said Oct. 31 in a Gazdasagi Radio interview. While the ruling party wants to keep participation optional, it’s prepared to present banks’ suggestion for public debate, Rogan said.

The government supports Fidesz’s proposal as a “temporary” solution until the legal uncertainties are cleared, cabinet spokesman Andras Giro-Szasz told reporters today in Budapest.

Hungarians hold 1.81 trillion forint ($8.2 billion) in foreign-currency mortgages and another 1.68 trillion forint in foreign-currency home-equity loans, which can be used for purchases other than homes. The loans account for 13 percent of the country’s economic output, according to data compiled by the European Bank for Reconstruction and Development. About two-thirds of Hungarian mortgages are denominated in Swiss francs.

OTP competes with mostly foreign-owned banks including Erste Group Bank AG, UniCredit SpA, KBC Groep NV, Intesa SanPaolo SpA and Raiffeisen Bank International AG.

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