Forint Weakens to 4-Month Low on Loan Concern: Budapest Mover

The forint dropped to a four-month low after Magyar Nemzet reported a leader of the ruling Fidesz party as saying banks must bear most of the cost of phasing out foreign-currency loans.

Hungary’s currency depreciated 0.7 percent to 302.28 per euro by 3:46 p.m. in Budapest, the weakest on a closing basis since April 26. Yields on the government’s benchmark 10-year bonds rose six basis points, or 0.06 percentage point, to 6.66 percent.

The state and borrowers will share the burden, albeit to a much smaller degree, the newspaper reported today, citing an interview with Antal Rogan, Fidesz’s parliamentary group leader. An immediate conversion of foreign-currency loans would cost banks about 950 billion forint ($4.2 billion), Sandor Csanyi, chief executive officer of OTP Bank Nyrt., said in an ATV interview late yesterday.

“The key local factor in Hungary is the uncertainty over the foreign-currency borrowers’ rescue package, which is having an impact on the forint,” Pal Saaghy, a Budapest-based currency trader at broker Equilor Befektetesi Zrt., said by phone today. “Rogan’s comment showed the burden is increasingly shifting toward the banks.”

Shares in OTP fell 0.9 percent to 4,270 forint, extending the decline to 15 percent since July 16 when the government said it wants to eliminate foreign-currency mortgages. The forint depreciated 3.1 percent against the common European currency in the same period.

Final Plan

The government will finalize the relief plans for borrowers by the end of December, Janos Lazar, the prime minister’s chief of staff, told news website Vasarhely24.

While OTP would survive any type of relief plan, an immediate currency conversion for loans may have “fatal” consequences for the wider economy, Csanyi said.

“Csanyi threw in a rather large number for the losses in case of total forint conversion, which probably increased the risks for the forint,” Equilor’s Saaghy said.

The MSCI Emerging Markets Index fell 0.2 percent today, erasing earlier gains, after Russia’s state-run news service RIA Novosti reported the detection of a missile launch in the Mediterranean. Israel said later that it was testing a missile-defense system.

Should the forint close weaker than 302 per euro, it would open the way for a further slide to 304.5, said Szilard Denes, a Budapest-based currency trader at MKB Bank Zrt., Bayerische Landesbank’s Hungarian unit.

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