Bloomberg News

Hungary Loan Plan Mustn’t Threaten Banking System, Kosa Says

September 12, 2011

Sept. 11 (Bloomberg) -- Hungary must help foreign-currency mortgage holders in a way that doesn’t undermine the banking system, Lajos Kosa, vice-president of the ruling Fidesz party said today.

Fidesz lawmakers proposed on Sept. 9 to make lenders bear the cost of early repayment of foreign-currency loans at fixed rates as much as 20 percent below prevailing rates. Hungarian shares fell to the lowest in two years and OTP Bank Nyrt., the country’s largest lender, plunged after the proposal was announced.

“Obviously a collapse of the banking system is in no one’s interest,” Kosa told Budapest-based HirTV. “We have to govern responsibly,” Kosa said, adding that the plan should also not hurt borrowers who don’t repay early by weakening the forint.

Two-thirds of Hungarian mortgages are denominated in Swiss francs and the plan to fix the franc exchange rate at 180 forint and the euro at 250 forint for early repayments is the latest effort to assist borrowers as a strengthening franc sent monthly installments soaring. Eastern European countries, including Hungary and Poland, are struggling to contain the damage from the franc’s rise of about 50 percent from five years ago, when many of the mortgage loans were taken out.

After the Fidesz party’s proposal was announced on Sept. 9 the BUX index slumped as much as 8.4 percent and was 6.2 percent lower at 17,041.97 by the 5 p.m. close in Budapest. OTP, which was briefly suspended for breaching the 10 percent trading limit, dropped much as 15 percent and traded 11 percent lower at 3,740 forint ($18.12), the lowest level since July 2009.

Prime Minister Viktor Orban will tomorrow present some details of the plan to help borrowers and measures to defend against the impact of the euro-area crisis, MTI reported, citing Orban’s spokesman Peter Szijjarto.

--With assistance from Zoltan Simon in Budapest. Editor: Ben Livesey

To contact the reporter on this story: Andras Gergely in Budapest at agergely@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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