Hungary Mortgages Fixed Only by Recovery, UniCredit Says

Hungary’s government should focus on strengthening the economy and the forint to help foreign currency mortgage borrowers, the head of UniCredit SpA’s eastern European division said.

Facing 2014 elections, Prime Minister Viktor Orban has vowed to “eliminate” mortgages and home-equity loans denominated mostly in Swiss francs. Amounting to 3.5 trillion forint ($15.6 billion), they have choked household spending since the forint weakened against other currencies in 2008.

The government has proposed sticking most of the bill to banks including market leader OTP Bank Nyrt, Erste Group Bank AG and KBC Groep NV. That plan has drawn criticism from some lenders, who lost $1.7 billion during a 2011 program to tackle the debt and have suffered due to years of economic contractions since 2008.

“The only thing that could really solve the problem would be if the Hungarian economy picked up,” Gianni Franco Papa told journalists on Sept. 13 in Prague. “We need a more stable situation between the government and the financial side but not only the financial side” so that “there is confidence coming back to the country, the economy, and therefore the exchange rate of the forint will improve. This is the only thing that may help.”

Constant Chase

The forint has depreciated more than 20 percent against the euro and 40 percent against the franc from its 2008 peaks. That has driven up Hungarians’ monthly payments on loans that equal 13 percent of output, according to the European Bank for Reconstruction and Development.

The government will make public its own proposal for handling the debt after Nov. 1 if commercial banks fail to agree with clients on converting the loans to forint, Orban said on state-run MR1 radio on Sept. 6.

Papa said it was unclear to him what exactly the government wants because it is frequently changing its position due to political developments. Hungary’s banking association, which is headed by UniCredit’s local chief executive officer, Mihaly Patai, proposed a plan to convert mortgages that seemed acceptable but was then thrown out by Orban again, he said.

“The discussion with Hungary is ongoing to the point that almost every day I’m on the phone with our CEO in the country,” he said. “We don’t understand where we stand. It’s a constant chase. We find a solution that serves to solve some problems and immediately after, for political reasons, with the elections coming up next year, different things pop up.”

Avoid ‘Blitzkrieg’

Orban wants to avoid a repetition of its 2011 “Blitzkrieg” on banks, he said on July 26. Andreas Treichl, chief executive officer at Vienna-based Erste, said further moves against Hungary’s financial sector would “not only hurt the financial system but the country overall.”

The government should avoid converting all foreign currency loans at once, because that might hurt the forint, Papa said, adding there was an exposure of 14 billion Swiss francs ($15 billion).

“If they want to do it in one go, this is going to create problems. If it’s smoothed out over years, it would be manageable,” he said.

UniCredit, which is among the top 10 banks in Hungary and is the biggest bank in eastern Europe, has about 500 million euros ($668 million) of foreign currency loans itself in Hungary. That’s less than the large competitors as UniCredit is focused on corporate clients and therefore remained profitable in the last five years, Papa said.

UniCredit is focusing its emerging European operations on the group of countries it deems having the best potential for profit growth: Russia, Poland, Turkey, and the Czech Republic. In the last of these, it acquired 29,000 new clients with about 7.4 billion Czech crowns ($383 million) in deposits from Axa SA after the French insurer closed its banking arm in the country.

UniCredit is also about to complete the merger of its Czech and Slovak units, which will allow it to reduce costs and use capital and liquidity more efficiently, Papa said.

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