Bloomberg News

Hungary’s Central Bank Accepts $3.1 Billion in Swap Bids

February 14, 2012

(Updates forint in fifth paragraph.)

Feb. 13 (Bloomberg) -- Hungary’s central bank accepted 2.34 billion euros ($3.11 billion) in foreign-currency swap bids from local lenders to ease pressure on the forint from the early repayment of mortgage loans at below market exchange rates.

The Magyar Nemzeti Bank paid out 1.57 billion euros to lenders from October to January, the central bank said in a summary of the transactions posted on its website today.

The government forced commercial banks to swallow exchange- rate losses on foreign currency denominated mortgages by giving the option for borrowers to repay their loans in a lump sum at below-market rates. Two-thirds of housing loans were denominated in foreign currencies, mostly in Swiss francs, and installments on them soared as the forint weakened.

The central bank allowed domestic lenders to tap its foreign currency reserves to cope with an expected increase in demand for Swiss francs and euro.

The offer was aimed at easing depreciation pressures on the forint, which fell to a record-low against the euro last month and was the worst-performing currency in the world in the second half of last year. The forint strengthened 1.3 percent against the euro to 290.54 per euro at 1:52 p.m. in Budapest today, rising the most in two weeks.

Foreign-Currency Loans

Hungarian banks lost 210 billion forint ($958 million) on the early repayment plan, the financial regulator PSZAF said in a report published on Feb. 8. Lenders were able to deduct part of an extraordinary bank tax from their losses, which cut the total cost of the mortgage initiative by 88 billion forint.

About 160,000 borrowers are estimated to have taken advantage of the plan until a Dec. 31 deadline, repaying 19 percent of the total outstanding foreign currency debt at financial institutions, PSZAF said on Feb. 7. Ninety-six percent of the repaid mortgage loans were denominated in Swiss francs.

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

Hungary’s foreign currency reserves dropped 12 percent in January from December, according to central bank data published on Feb. 7. Foreign currency reserves fell to 31.1 billion euros at the end of January from 35.1 billion euros at the end of December. Total reserves dropped to 37.3 billion euros from 37.8 billion euros in the same period as an increase in “other reserve assets” tempered the drop.

The forint has been the best-performing currency this year as investors speculate that Hungarian Prime Minister Viktor Orban will obtain a loan from the European Union and the International Monetary Fund. Formal talks on the loan haven’t started because of objections from the institutions to an array of legislations, including a new central bank law, which Orban has pledged to change to clear the way for a bailout.

--Editors: Zoe Schneeweiss, Balazs Penz

To contact the reporter on this story: Zoltan Simon in Budapest at zsimon@bloomberg.net

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


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