Hungary govt yet to decide on fx loan conversion -Fidesz (updated)

MBH Jelzalogbank Nyrt

04/11/2014 16:56

* Conversion will not be mandatory -lawmaker 
    * Govt to decide on timing, exchange rate level -lawmaker 
    * Central bank to provide 9 bln euros for conversion 
 
 (Adds detail, more comments) 
    By Krisztina  Than and Marton Dunai 
    BUDAPEST, Nov 4 (Reuters) - Hungary's ruling Fidesz party on 
Tuesday proposed tighter rules on bank lending, but took no 
decision on the terms of a planned conversion of billions of 
euros worth of foreign currency loans, lawmaker Antal Rogan 
said. 
    Prime Minister Viktor Orban wants eventually to eliminate 
the originally low-interest foreign currency loans which many 
Hungarians took out when exchange rates were more favourable and 
which have burdened households since the 2008 economic crisis. 
    Banks fear that the planned conversion, if done below market 
exchange rates, would place further losses on them after earlier 
government measures that already forced them to accept big 
charges this year. 
    Rogan, who heads Fidesz' parliamentary group, told reporters 
the government will have decide on the exchange rate of the 
conversion and any burden sharing with the bank sector after 
consultation with banks. He gave no timetable for a decision. 
    He also said banks will have to offer the option of 
converting foreign currency loans to their clients, but the 
conversion will not be mandatory for borrowers. 
    He declined to say whether Fidesz supported conversion at 
the spot market exchange rate or below market rates. 
    Hungarian households took out about 10 billion euros worth 
of loans denominated in foreign currencies, chiefly in Swiss 
francs, attracted by the low interest rates found abroad before 
the 2008 financial crisis.  
    But many of those borrowers were unable to re-pay loans when 
the safe-haven franc gained as much as 80 percent against the 
forint in the wake of the crisis, sending their outstanding debt 
values skyward even though the interest rates remained low. 
     
    "FAIR BANKING" 
    Rogan said under the new banking regulations, which will 
bolster the rights of borrowers, banks can change loan terms 
only in coordination with the central bank, adding that all 
loans must adhere to the stricter new rules by 2016. 
    He said banks will not be allowed to raise fees by more than 
inflation. Every three years borrowers will have the right to 
terminate their loan contracts without a penalty, he added. 
    Earlier in the day, the National Bank of Hungary announced 
that it would provide 9 billion euros for banks from its foreign 
currency reserves to mitigate any negative impact on the forint 
from the planned conversion, and ensure a smooth phasing out of 
foreign currency loans. 
    The volatile forint currency  EURHUF=  could be hit hard if 
banks had to sell the local currency in the market to buy 
billions of Swiss francs and euros during the process. 
    The central bank will have to tread carefully not to scare 
off investors who finance Hungary's debt. The bank has about 36 
billion euros of reserves, which comfortably cover Hungary's 
short-term external debt. 
    While Hungary's reserves will fall, the central bank's 
scheme will require banks to reduce their own short-term 
external debt, which in turn reduces the level of required 
reserves. 
    The forint was unfazed by the announcements, trading at 
around 309 versus the euro. 
    Banks operating in Hungary include Austria's Erste  ERST.VI  
and Raiffeisen  RBIV.VI , Italy's Intesa  ISP.MI  and UniCredit 
 CRDI.MI , as well as Hungarian lender OTP  OTPB.BU . 
 
 (Reporting by Krisztina Than and Marton Dunai; Editing by 
Crispian Balmer) 
 ((marton.dunai@thomsonreuters.com; +36-1-327-4742; Reuters 
Messaging: marton.dunai.thomsonreuters.com@reuters.net)) 
 
Keywords: HUNGARY FXLOANS/