Hungary's top court to make sweeping ruling on FX loans (updated)

MBH Jelzalogbank Nyrt

25/11/2013 13:35

* Top court to assess fx loans in a bid to establish standard ruling * PM Orban has urged court to rule in favour of borrowers * Radical measure not in govt's interest now as forint could fall -analyst * Government could intervene to cut interest rate margin -analysts (Adds detail, analysts) By Gergely Szakacs and Krisztina Than BUDAPEST, Nov 25 (Reuters) - Hungary's top court confirmed for the first time on Monday that it will rule on key aspects of foreign currency loans, including whether they were ever legal, as it sets out a framework for resolving claims by borrowers. The court, called the Kuria in Hungarian, has said it will propose a standard procedure for courts handling hundreds of lawsuits brought against banks by people struggling to repay the loans, but had not previously specified the scope of its ruling. Justice Ministry State Secretary Bence Retvari said the Kuria's ruling will define the framework for the government's planned relief measures for forex borrowers.  ID:nB3N0IB009  Hungary's mostly foreign-owned banks, which lost more than 1 billion euros as a result of a 2011 scheme to ease the repayment burden for households with foreign currency mortgages, fear they could be hit again by any new government action. It was not immediately clear if the Kuria's prospective guidance would apply to all foreign currency loan contracts appealed at the courts or just a limited type of contracts. Prime Minister Viktor Orban has urged the Kuria to rule whether banks or borrowers should bear exchange rate losses on foreign currency loans, and whether banks can unilaterally modify the interest rates on the loans.  ID:nB3N0FU01K  The central bank says Hungarian households hold as much as 3.8 trillion forints ($17 billion) worth of foreign currency denominated loans. The loans, taken out prior to 2008 and mostly in Swiss francs and euros, have become costly to service as the forint has fallen in value, hampering domestic consumption and making the economy vulnerable to exchange rate swings.  The Kuria is expected to discuss a standard legal procedure on December 16. Its deliberations will include an examination of whether the loan contracts were valid at all, and in what circumstances the conditions allowing unilateral modifications of contracts could be regarded as transparent. Its ruling could allow the government to intervene with legislation to cut the repayments of hundreds of thousands of households ahead of elections in April, some analysts said.  "I don't expect a decision from the court that would lead to a radical measure," said Citigroup economist Eszter Gargyan.  "I see a bigger chance for the Kuria, in line with the proposal of the central bank, to intervene in the interest rate and exchange rate margins applied on the loans." Given the ruling Fidesz party's stable lead in opinion polls, Gargyan said it would not be rational for the government to impose a radical measure that would risk a sharp fall in the forint. But a cut in the interest rate margin would reduce borrowers' repayments without leading to an immediate capital loss for banks. In its stability report earlier this month, the National Bank of Hungary said lending rates should be regulated to maximise the margin that banks could charge on top of a benchmark interest rate. Any new measure will affect Hungary's biggest lender, OTP Bank  OTPB.BU , as well as local units of Austrian Raiffeisen RBIV.VI  and Erste  ERST.VI , Italy's Intesa Sanpaolo  ISP.MI  and UniCredit  CRDI.MI , Belgium's KBC  KBC.BR  and others. (Editing by Catherine Evans) ((gergely.szakacs@thomsonreuters.com)(+36 1 327 4748)(Reuters Messaging: gergely.szakacs.thomsonreuters.com@reuters.net)) Keywords: HUNGARY FXLOANS/