Forint Weakens, Extending Monthly Loss as Fitch Warns on Loans

Sept. 28 (Bloomberg) -- The forint and Hungarian bonds weakened after Fitch Ratings said the country’s offer of early repayment of foreign-currency mortgages at below market rates may hurt economic growth.

The Hungarian currency depreciated as much as 1.3 percent and dropped 0.6 percent to 288.6 per euro as of 3:56 p.m. in Budapest, extending losses this month to 6 percent. Government bonds maturing in June 2022 slumped, lifting the yield 13 basis points, or 0.13 percentage point, to 7.96 percent.

The law on repayments, which enters into force this week and which makes lenders swallow exchange-rate losses, sets a “dangerous precedent,” Fitch Ratings said today. The plan may reduce parent banks’ willingness to fund their Hungarian units, hurting credit and economic growth, Fitch said in a statement.

Parliament passed a law last week to allow the repayment of foreign-currency mortgages at 180 forint per Swiss franc and 250 forint per euro, with banks absorbing the losses. The plan sets “a worrying precedent” and is “credit negative” for Hungarian covered bonds, Moody’s Investors Service said in a statement yesterday.

European stocks fell, snapping the biggest three-day rally in 16 months, after a report that some countries are demanding private creditors take bigger writedowns on Greek bonds.

--Editors: Linda Shen, Ana Monteiro

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