Bloomberg News

Hungary Bank Accepts 2.7 Billion Euros in Loan Related Swaps

March 12, 2012

Hungary accepted 2.7 billion euros ($3.5 billion) in foreign-currency swap bids from local lenders to ease pressure on the forint from the early repayment of foreign-currency mortgages at discount exchange rates.

The Magyar Nemzeti Bank paid out 2.5 billion euros of the total to lenders from October to the end of February, the bank said in a summary of transactions posted on its website today.

The government forced commercial banks to swallow exchange- rate losses on foreign-currency denominated mortgages by giving borrowers the option 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.

Hungarians repaid 170,000 mortgages under the plan in a value of 1.4 trillion forint ($6.3 billion), cutting the total amount of outstanding foreign-currency mortgages by 23.3 percent, the financial market authority said in a report today.

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

Bank Losses

Domestic lenders booked a combined pretax loss of 370 billion forint on the repayment program, the authority known as Pszaf said, adding that lenders will be able to deduct some of their losses from a special bank tax.

Hungary’s banking industry was unprofitable for the first time in 13 years in 2011 because of the repayment plan, the special industry tax, and rising bad loan provisions. Banks posted a combined loss of 92.6 billion forint, Pszaf said Feb. 23.

Hungarian households are struggling to repay their foreign- currency loans as the forint weakened, boosting monthly installments and delinquency rates. The currency depreciated 39.7 percent against the Swiss franc and 19.7 percent versus the euro from mid-2008, when the bulk of these loans were taken out.

About 92 percent of repaid mortgages were denominated in Swiss francs, Pszaf said today, adding that banks’ return on equity fell 9.5 percentage points as a result of the repayments.

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

The government of Prime Minister Viktor Orban and local banks agreed in December to share costs for forgiving some foreign-currency loans and taking on currency risks for others in the next five years. Under the plan, banks will take losses of as much as 600 billion forint and the government will assume 300 billion forint.

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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