Bloomberg News

Nowotny Calls Hungary’s Swiss Franc-Loan Plan ‘Nonsensical’

October 21, 2011

(Updates with further Nowotny quotes in fourth paragraph, forint in fifth.)

Oct. 21 (Bloomberg) -- Hungary’s policy of forcing banks to swallow losses on foreign-currency mortgages is “economically nonsensical” and “wrong,” European Central Bank governing council member Ewald Nowotny said.

“I’m convinced that the brutal way that Hungary chose” to deal with Swiss-franc mortgages is “not legally feasible” and it’s “economically nonsensical,” Nowotny told an investor convention in Vienna today. “It’s a wrong way.”

Hungarian lawmakers approved legislation on Sept. 19 that allows early repayment of Swiss-franc denominated mortgages, which account for two thirds of such loans, at a fixed exchange rate of 180 forint per franc. Euro-denominated mortgages can be repaid at 250 forint per euro, provided they were taken out at lower exchange rates. Losses will be assumed by banks.

Households are struggling to repay franc-denominated mortgages after the advance of the Alpine currency boosted repayments and triggered defaults. The government’s plan to fix below-market exchange rates threatens financial stability, the Hungarian Banking Association has said.

The forint has weakened 6.1 percent against the euro since Sept. 9, when the repayment plan was made public. The currency had the biggest weekly loss this year as concern grew that Hungarian debt may lose its investment grade.

Austria’s Erste Group Bank AG and Raiffeisen Bank International AG are among Hungary’s largest banks. Erste, eastern Europe’s second-biggest lender, became the first foreign bank to recapitalize its Hungarian unit after the mortgage-loan plan came into effect. It said Oct. 10 it will inject 600 million euros ($828 million) into the subsidiary.

--Editors: Andrew Langley, Balazs Penz

To contact the reporters on this story: Boris Groendahl in Vienna at bgroendahl@bloomberg.net; Edith Balazs in Budapest at ebalazs1@bloomberg.net

To contact the editors responsible for this story: Jennifer Ryan at jryan13@bloomberg.net To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net


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