Bloomberg News

Hungary to Restructure $819 Million County Debt, Orban Says

October 03, 2011

(Updates with markets in fifth and seventh paragraphs.)

Oct. 3 (Bloomberg) -- Hungary wants to restructure the debt of counties while being mindful of the burden lenders face from existing government measures, including a bank tax and exchange- rate losses on mortgage loans, Premier Viktor Orban said.

The government wants to restructure the 180 billion forint ($819 million) of debt amassed by Hungary’s 19 counties, which the government is assuming, Orban told reporters in Budapest today.

“We’re starting talks with creditors and it’s our hope that we can reach a reasonable agreement and we will restructure” the debt “in all probability,” he said.

Hungarian lenders are reeling under a 120 billion-forint annual bank tax and a government plan that forces them to swallow exchange-rate losses on the early repayment of foreign- currency mortgages at below-market rates. The mortgage plan may hurt lending, growth and public financing, Standard and Poor’s said on Sept. 13.

OTP Bank Nyrt., Hungary’s largest lender, dropped 6 percent to 3,055 forint in Budapest. The bank’s share price declined 46 percent in the third quarter.

OTP competes mostly with units of international banks, including Raiffeisen Bank International AG, Erste Group Bank AG, UniCredit SpA, Intesa Sanpaolo SpA and Bayerische Landesbank.

‘Burden’

Parliament last month approved a law that allows the repayment of foreign-currency mortgages at 180 forint per Swiss franc and 250 forint per euro. The forint traded at 244.06 per Swiss franc and 296.38 per euro today.

The mortgage plan is a “very big burden” on lenders, Orban said today.

“That’s why we have to be careful about what kind of new burden we put on banks’ shoulders,” he said. “Lenders are stretched to their limits.”

The mortgage plan sets “a worrying precedent” and is “credit negative” for Hungarian covered bonds, Moody’s Investors Service said on Sept. 27. A day later, Fitch Ratings said the plan is a “dangerous precedent” and may hurt lending.

Moody’s and S&P will send teams to Hungary this month to review the country’s credit grade, which is at the lowest investment level with negative outlooks at both companies, Debt Management Agency Chief Executive Officer Gyula Pleschinger said on Sept. 30.

--Editors: Alan Crosby, Andrew Langley

To contact the editor responsible for this story: Zoltan Simon at zsimon@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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