Hungary banks given deadline to devise plan to settle forex loan issue

By bne IntelliNews September 6, 2013

Tim Gosling in Prague -

The head of Hungary's ruling Fidesz parliamentary faction threatened the banks on September 5 that they must come up with a satisfactory proposal to settle the foreign-currency debt issue by November 1, or the government will implement its own solution.

The banks must repair the mistakes of forex mortgages, Antal Rogan insisted, saying that they have a moral responsibility for the problem and should modify loan contracts in favour of borrowers. The deadline for the banks to come up with a satisfactory proposal is November 1, he warned.

Budapest recently rejected proposals by the country's banking association for a solution to the forex debt issue, with hundreds of thousands of borrowers having seen their monthly payments on debt in Swiss francs and euros skyrocket during the crisis. It is one of the last brakes on the government's erratic and unorthodox economic policymaking, as any moves that lower the value of the forint, like interest rate cuts, would immediately hurt households even more.

The government made a sudden announcement in the summer that it intends to wipe out forex debt one way or the other. In a bid to soothe market nerves, it quickly promised to negotiate a settlement with the country's battered lenders, but is clearly not ready to let them escape without significant losses. The banks shouldered huge costs in a three-month scheme to allow early repayments from borrowers in late 2011.

"For one and a half months banks have the possibility to resolve this problem as they also have the moral obligation (to do so)," Rogan told a news conference, according to Reuters. "We expect banks to modify the contracts... if this does not happen then the state will step in, and will work out its own proposal which parliament will approve before the end of the year. And the direction of this is fairly obvious."

"We will set the goal of phasing out foreign currency mortgages... and practically implement a conversion of these (loans) into forints," he added.

That threat is at odds with words earlier this week from Minister of National Economy Mihaly Varga, who sought to calm nerves by insisting the government is still considering several options, including that put forward by the banks. However, his ministry said on September 4 the current offer from the banks is unacceptable.

Sandor Csanyi, head of Hungary's biggest lender OTP, claimed on September 3 that the country's banks stand to lose HUF950bn (€3.14bn) from the issue, and that this would cause the economy to collapse. Analysts point out Csanyi is in the midst of a political fight with Fidesz, and that the figure he gave would only materialize should the most extreme option being considered by the government be implemented.

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