Tim Gosling in Prague -
Facing a government decision on how to deal with household's foreign currency mortgages, Hungarian banks were put on edge again on August 12 as an official reopened a war of words with the country's most senior banker, accusing him of usury in connection with these forex loans.
According to Reuters, Prime Minister Viktor Orban's chief of staff, Janos Lazar, called OTP Bank CEO Sandor Csanyi, "the number one usurer in the country. He throws his weight around with the billions he has amassed from foreign currency borrowers."
Csanyi was previously viewed as a close confidant of the prime minister and the Fidesz government. However, in July, with the government surprising with an announcement that it plans to deal with the forex debt issue once and for all, the banker criticized the move. That sparked fury from Lazar, who accused the OTP head of being an octopus with tentacles reaching into every area of Hungarian life.
Later the same week, Csanyi warned the government to take it easy on the banks to avoid upsetting the nascent economic recovery. He also shot back at the Fidesz official. "Some people clearly consider it an achievement to be mouthing off about me because then they appear brave," he said. "I'm thinking about Mr Lazar."
The banker also sold all of his stake - worth around €27m - in OTP around the same time, sparking a sharp slide in the share price of the country's largest lender, denying it was connected to inside information on the forex debt plan. However, signs since have suggested the government is taking a more conciliatory tone in talks with the banks over the form of the scheme to get rid of forex loans, and the shares have recovered somewhat.
The resumption of hostilities has the banks on edge again as they continue to negotiate with the government on the final plan. While Finance Minister Mihaly Varga has indicated that the most drastic option - which would cost around HUF1.1 trillion (€3.7bn) - is unlikely, that still leaves plenty of scope to inflict further suffering on the country's lenders, which are also paying a heavy crisis tax and a financial transaction tax. An early repayment scheme for forex mortgages in late in 2011 saw the banks forced to shoulder huge losses.
Heavily sold by the banks in the run-up to the 2008 crisis when the forint was riding high, Hungarian households have seen their monthly payments skyrocket as the currency has lost value in the last few years. The government had indicated earlier this year that it would not seek to force a solution to the problem, but it performed an about-face in July. The vulnerability of the country to financial markets that the billions in household forex debt produces is perhaps the last remaining brake on Budapest's unorthodox policymaking.
Varga said last month that Hungary intends to phase out forex debt entirely. The speed of that move, and who pays what towards the losses - the banks, the state or the borrowers - is the key question. The government has said the ongoing talks with the banks on those questions must be concluded by the end of September. Analysts report that Hungarian household forex debt sits at around HUF3.7 trillion currently.
The worry is that Fidesz will push for a populist solution, given that it is clearly now in campaign mode ahead of a general election in May. At the same time, it also needs the battered banks to start lending again to support recovery from recession.
However, Orban has shown that next year's vote has him thinking increasingly short term. Engaging the nationalist mood in Hungary, the government has continued to deter investment and drain reserves by promising to enforce a 30% cut in energy tariffs by the election - 10% was implemented so far - and legislating to make energy companies sell all gas storage assets to the state.
It is also leveraging anti-EU and international institution sentiment - which it has done much to cultivate in Hungary. August 12 also saw Budapest pay off its outstanding obligations to the International Monetary Fund early, as it had promised to do last month. The Washington-based lender has also agreed to close its office in the country, as Orban seeks to prove to the electorate that he has freed Hungary from the "tyranny" of international bankers. Budapest paid SDR1.88bn (approx $2.85bn) which was scheduled through the rest of 2013 and next year.
While the move will not have a huge impact on the country's fiscal position now, the refusal of Budapest to agree on another loan from the IMF last year is likely to cost the country significant cash in borrowing costs. Hungary returned to the international markets early this year with a $3.75bn bond, but paid significantly more than it had it borrowed from the IMF.
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