Bloomberg News

Hungary Banks Offer to Book More Losses on FX-Mortgage Loans

November 23, 2011

(Adds UniCredit comment from eighth paragraph.)

Nov. 22 (Bloomberg) -- Hungarian banks are offering to book further losses on foreign-currency loans in exchange for the government accepting their proposals submitted last week and abstaining from unilateral regulations.

“Our proposals include burden sharing on foreign-currency loans to the tune of several hundred billion forint for banks on a five-year horizon,” Daniel Gyuris, deputy head of the Bank Association said in an interview during a conference in Budapest today. “What we want in exchange is that the government accepts the package we submitted in its entirety and there won’t be new regulations on this issue for two years.”

Households are struggling to repay foreign-currency mortgages, which account for more than two-thirds of all housing loans, after a slump in the forint boosted repayments and triggered defaults. Hungary in September passed a law allowed the early repayment of mortgages denominated in euros and Swiss francs at more than 20 percent below market rates, forcing lenders to swallow losses.

The European Central Bank warned that the law may “substantially weaken” financial stability and the European Commission said it may infringe the bloc’s rules. The government this month asked banks for their proposals to ease pressure on borrowers.

Forint Drop

The forint has weakened 40 percent against the Swiss franc since June 2008, when the bulk of franc-denominated mortgages were taken out. The currency weakened the most in the world against the euro since June 30 after hitting a record low of 316.76 per euro on Nov. 14. It traded at 305.09 at 10:54 a.m. in Budapest.

The banks’ plan would offer a solution to all foreign- currency borrowers, not just those who are late with repayments or are unable to meet their debt obligations, Gyuris said. “Banks have put in place several measures to lift the pressure on customers,” UniCredit SpA’s east Europe head said today.

“The exit strategy is always to be discussed among the stakeholders, without having situations where you have actions, like for instance in Hungary, where most of the burden is put on banks,” UniCredit’s Gianni Papa said at a conference in Vienna.

The European Commission gave Hungary 10 weeks to respond to concerns regarding the law in a mediation procedure, Chantal Hughes, spokeswoman for EU Financial Services Commissioner Michel Barnier, said yesterday.

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

--With assistance from Boris Groendahl in Vienna. Editors: Balazs Penz, Zoe Schneeweiss

To contact the reporter on this story: 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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