Bloomberg News

Raiffeisen May Lose $103 Million on Hungary Franc-Loan Plan

October 26, 2011

(Adds further comments from Szabo from second paragraph, markets in sixth.)

Oct. 26 (Bloomberg) -- Raiffeisen Bank International AG’s Hungarian unit may lose as much as 22 billion forint ($103 million) on the government allowing the repayment of foreign- currency mortgages at below-market exchange rates.

Raiffeisen, which pays 11 billion forint a year to the budget in a special bank tax, estimates the impact of the repayment plan at “between one and two times” that amount, Ferenc Szabo, the subsidiary’s deputy chief executive, said in an interview during a conference in Budapest today.

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 the banks.

Local lenders expect between 10 percent and 20 percent of eligible borrowers to participate in the program and the number of applications so far “unfortunately supports this projection,” Szabo said.

Households are struggling to repay franc-denominated mortgages after the advance of the Alpine currency boosted repayments and triggered defaults. The government levied extraordinary taxes on several industries, including banks, to rein in the budget deficit as the economy slows.

‘Very Long Time’

The forint has weakened 6.9 percent against the euro since Sept. 9, when the repayment plan was made public. Hungary’s credit-default swaps rose to the highest in 2 1/2 years and the five-year bond yield this month reached the highest since January.

Hungarian banks will probably post losses in the “next one or two years” as risk costs will remain very high for “a very long time,” revenue declines and capital needs increase, Szabo said at the conference.

“We’re at a competitive disadvantage in the race for capital allocation,” Szabo said, adding that the amount of capital flowing into the country will be sufficient “for performing the necessary minimum amount of tasks.”

OTP Bank Nyrt., Hungary’s largest lender, competes mostly with units of international banks including Erste Group Bank AG, Raiffeisen, UniCredit SpA, Bayerische Landesbank AG, KBC Groep NV, and Intesa Sanpaolo SpA.

Erste Recapitalized

Erste, eastern Europe’s second-biggest lender, was the first foreign bank to recapitalize its Hungarian unit. It injected 600 million euros ($836 million) into the subsidiary, the Vienna-based lender said on Oct. 10.

The bank, which expects a loss of about 500 million euros this year in Hungary, is provisioning an additional 450 million euros to cover credit losses caused by the mortgage plan and worsening economic prospects.

Raiffeisen sees “additional significant provisioning” in Hungary, the lender said on Oct. 10. The exact amount of capital Raiffeisen Hungary will receive will be made public by the end of the year, Szabo said.

--Editors: Balazs Penz, Douglas Lytle

To contact the reporter on this story: Edith Balazs in Budapest at ebalazs1@bloomberg.net

To contact the editor responsible for this story: Douglas Lytle at dlytle@bloomberg.net


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