Dec. 15 (Bloomberg) -- The forint gained and OTP Bank Nyrt.’s shares staged the biggest rally in more than two weeks as Hungary signed a deal with the country’s banks to share the burden of helping foreign-currency mortgage holders.
The forint appreciated as much as 1.4 percent and traded 1.2 percent stronger at 301.5 per euro. Shares of OTP, Hungary’s biggest lender, rose 6.2 percent to 3,150 forint by the close in Budapest, the biggest jump since Nov. 30 and paring its losses this year to 37 percent. The BUX index, in which OTP has a 26 percent weighting, rose 1.5 percent to 17,024.43.
The agreement with the lenders marks a shift after the government unilaterally allowed the repayment of foreign- currency home loans at below market rates in September and forced banks to swallow the costs. Today’s deal may also help Hungary secure assistance from the International Monetary Fund, which Prime Minister Viktor Orban requested last month, according to HSBC Holdings Plc.
“What is key is that for the first time in a while the two sides found an agreement,” Murat Toprak, a London-based strategist at HSBC, said in a telephone interview today. “This agreement clearly paves the way for a deal with the IMF. It’s something which is overall positive for Hungary and the forint in particular.”
The government and commercial banks have agreed to share the burden on foreign-currency home loans, Economy Minister Gyorgy Matolcsy told reporters today. Lenders will be able be to write off the extra burden they take on in foreign-currency mortgages from the extraordinary tax on banks, Matolcsy added. The government will also cut the bank tax level by 50 percent starting in 2013, Matolcsy said.
The government is also considering merging the central bank with the country’s financial regulator. A bill to change the composition of the central bank’s decision-making bodies shows Orban is aiming for a “total takeover” of the bank, central bank President Andras Simor told news website Index in an interview published today.
The central bank merger plan creates uncertainty for the forint after the rally on the government’s agreement with commercial lenders, Michal Dybula, Warsaw-based central Europe economist at BNP Paribas SA, wrote in an e-mail today.
“The markets are ignoring the long-run risks to inflation and other policy areas that require independence,” Peter Attard Montalto, a London-based economist at Nomura International Plc, wrote in an e-mail on why Hungarian assets didn’t slump on the central bank reorganization plans.
The European Commission is “concerned” that Hungary’s draft central bank law may undermine the independence of the institution, commission spokesman Amadeu Altafaj said by e-mail today.
Hungary will rely on budget reserves, tax increases and channeling more private pension fund contributions to the budget to plug a 320 billion-forint ($1.4 billion) hole in next year’s budget resulting from slower growth and a weaker forint, Matolcsy said.
The IMF and the European Union may not welcome some of the “controversial” budget measures, said Zoltan Arokszallasi, a Budapest-based economist at Erste Group Bank AG.
“All in all however, we view today’s agreement as positive for the forint,” Arokszallasi wrote in a report, adding that he forecasts a forint level of 280 against the euro at the end of 2012.
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