Hungary Banks Ready for Compromise on Franc Loans, Gyuris Says

Hungarian lenders are open to writing off part of overdue foreign-currency mortgage loans in exchange for a reduction in Europe’s highest bank tax, said Daniel Gyuris, acting head of the Hungarian Bank Association.

So far there have only been “indications” that the Cabinet is considering measures to help borrowers with mostly Swiss-franc home loans, even as no official talks are under way between lenders and the government, Gyuris, who is a deputy chief executive officer of OTP Bank Nyrt., Hungary’s largest lender, said in a phone interview today. A deal could be reached “relatively fast,” he said.

Prime Minister Viktor Orban allowed the early repayment of foreign-currency mortgages at below-market rates in 2011, forcing banks to swallow losses. Along with Europe’s highest bank levy, the move turned local lenders unprofitable for the first time in 13 years in 2011, sapped investor confidence and contributed to a plunge in lending.

The Cabinet is seeking an agreement with lenders on boosting credit as it battles its second recession in four years while trying to help borrowers whose repayments soared with the weakening of the currency.

Creating Incentives

Reducing the bank levy in exchange for writing off part of the overdue foreign-currency home loans “would create incentives for borrowers as well without posing a threat to financial stability,” Gyuris said.

The forint weakened 0.4 percent to 299.76 per euro by 4:43 p.m., falling a third day to the weakest level since Jan. 28. OTP shares gained 0.7 percent to 4,836 forint, helping lead the benchmark BUX stock index 0.8 percent higher.

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 today, without saying how it got the information. The central bank may help lenders get access to foreign currency from its reserves, Nol said. The Magyar Nemzeti Bank and the government haven’t commented.

Hungary will “obviously talk about this,” Mihaly Varga, economy minister designate, 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.

‘Very Careful’

Hungary should be “very careful” with its foreign-currency reserves and the government must leave the central bank to determine their use, Orban told reporters in Warsaw today.

“It seems the government is more cautious in tackling the foreign-currency debt issue,” Attila Gyurcsik, an analyst at Concorde Securities Zrt. in Budapest, said by phone today. Cleaning up bad debt “is useful in the long term and shouldn’t prompt a negative market reaction.”

The central bank may seek the help of the Swiss National Bank in the planned conversion of franc-denominated loans, the newspaper Magyar Nemzet reported today, without citing anyone. The SNB hasn’t been contacted by Hungary so far, spokesman Walter Meier said in an e-mail.

Hungarians borrowed predominantly in Swiss francs and euros to take advantage of lower interest rates. The subsequent weakening of the forint sent repayments soaring, triggering a jump in non-performing loans. The amount of foreign-currency mortgages overdue more than 90 days was 541 billion forint ($2.4 billion) at the end of 2012, according to central bank data.

Further Measures

The government, in agreement with banks, introduced further programs to help borrowers last year. Under one of these plans, which ended in September, banks converted non-performing loans to forint and wrote down 25 percent of the debt in exchange for deducting some of their losses from the bank levy.

The central bank allocated 810 million euros ($1.1 billion) to domestic lenders at the time of the early repayment and a further 36 million euros for subsequent debt relief programs, according to central bank data.

Lenders asked that talks with the government and civil associations on foreign-currency mortgages be delayed, citing a lack of information from the Cabinet, state news service MTI said yesterday, citing Agnes Suto, communications director at the Hungarian Banking Association.

Changed Tone

The planned measures would affect about 100,000 households that are more than three months late with their loan repayments, Nol said.

The government is under pressure to reignite growth, which means that it can’t force banks to book further “huge losses” on foreign-currency loans, Zoltan Reczey, analyst at Budapest-based Buda-Cash Brokerhaz Zrt. said by phone today.

“Therefore, these new planned measures won’t cause such a huge drama as the early repayment,” Reczey said. The parties may find a solution that doesn’t “do banks in and won’t turn the budget upside down” as there’s a “change in the government’s tone toward banks.”