Bloomberg News

Hungary Fines 11 Banks $43 Million After Mortgage Cartel Probe

November 20, 2013

Hungary fined 11 banks for what it said amounted to illegal collusion two years ago against a government program that imposed costs on lenders by allowing the repayment of foreign-currency loans at below-market rates.

The competition authority, known as GVH, levied a fine of 9.5 billion forint ($43 million), including 3.9 billion forint on OTP Bank Nyrt., Hungary’s largest lender, and 1.7 billion forint on the unit of Erste Group Bank AG (EBS), the second biggest in the country. The banks cooperated between September 2011 and January 2012 to limit the forint-based home loans available to replace Swiss franc or euro debt, GVH said in an e-mail.

The ruling is “unfounded,” OTP said in a statement to the Budapest bourse, adding that it will use the “available opportunities for legal redress.” Erste didn’t coordinate its strategy with other lenders and will make a decision on possible legal steps later, the bank said in an e-mailed statement today.

Hungarians have struggled with mortgages borrowed in foreign currencies since the forint plunged during the economic crisis. The country lost its investment-grade credit rating and OTP’s shares fell 36 percent in 2011 after the government introduced the loan repayment program and levied special taxes on banks. Prime Minister Viktor Orban, facing 2014 elections, has promised to phase out remaining non-forint mortgages and lower monthly payments.

“I don’t remember a fine this large,” Attila Gyurcsik, a Budapest-based analyst at Concorde Ertekpapir Zrt., Hungary’s biggest broker said by phone. “This could be symbolic.”

OTP Drops

OTP’s shares dropped 0.9 percent to 4,372 forint by 1:09 p.m. in Budapest, paring its advance this year to 5.3 percent. The benchmark BUX stock index, in which OTP accounts for a third of the weightings, dropped 1 percent today.

The GVH also fined Takarekbank, a savings bank in which the state acquired a majority stake this year; Budapest Bank, a unit of General Electric (GE:US) Capital Corp.; CIB Bank, a unit of Intesa Sanpaolo SpA (ISP); MKB Bank, which belongs to Bayerische Landesbank; K&H Bank, a unit of KBC Groep NV (KBC); UCB, a unit of BNP Paribas SA (BNP) and the local units of Citigroup Inc., Raiffeisen Bank International AG (RBI) and UniCredit SpA. (UCG)

Banks in Hungary lost $1.7 billion during the 2011 program that allowed the early repayment of foreign-currency household mortgages at below-market exchange rates in a lump sum. More than 156,000 borrowers repaid their loans under that program.

The banks exchanged “business secrets” as they coordinated with each other to curb the repayments, the GVH said.

The government wants Hungary’s Supreme Court, known as Kuria, to issue guidelines to streamline “contradictory” rulings related to foreign-currency loans, to help prevent lenders from challenging further aid measures planned for borrowers, government spokesman Andras Giro-Szasz said in an interview on M1 television two days ago.

The cabinet has also expanded a separate program that temporarily allows paying installments at fixed rates.

To contact the reporters on this story: Andras Gergely in Budapest at agergely@bloomberg.net; Marton Eder in Budapest at meder4@bloomberg.net

To contact the editor responsible for this story: Wojciech Moskwa at wmoskwa@bloomberg.net


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