Bloomberg News

Hungary’s Loan Plan Sets ’Dangerous Precedent,’ Fitch Says

September 28, 2011

(Updates with Fitch comment in second and fifth paragraphs, Moody’s in third.)

Sept. 28 (Bloomberg) -- Hungary’s offer for early repayment of foreign-currency mortgages at below-market rates with banks swallowing losses sets a “dangerous precedent” and may hurt lending, Fitch Ratings said, echoing comments by Moody’s Investors Service.

The plan, together with a special bank levy and a “generally quite aggressive policy stance with respect to the banking system, could make it less likely that parent banks will put more capital and funding into the Hungarian banking system,” Fitch said today in a statement. This may harm lending and restrict economic growth, it added.

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 to absorb the losses. The plan sets “a worrying precedent” and is “credit negative” for Hungarian covered bonds, Moody’s said yesterday.

The European Union has said the mortgage program may violate its rules, while Hungary’s central bank warned that local lenders will suffer “significant” losses.

The program may cost the banking industry 1.5 percentage points of its Tier 1 capital ratio if a quarter of eligible mortgage holders participate, Fitch said.

Hungary, where two-thirds of mortgage loans are denominated in Swiss francs, is struggling to help borrowers after the Alpine country’s currency rose to a record, boosting defaults and pushing up monthly payments. The country’s largest lender, OTP Bank Nyrt., competes mostly with units of international banks including Raiffeisen Bank International AG, Erste Group Bank AG, UniCredit SpA and Bayerische Landesbank AG.

--Editors: Andrew Langley, Paul Abelsky

To contact the reporters on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net; Edith Balazs in Budapest at ebalazs1@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net


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