Hungary helps commercial banks find FX to compensate customers (updated)

MBH Jelzalogbank Nyrt

24/09/2014 10:38

* Central bank says banks will need fx, ready to provide it 
    * Launches two new tools to meet banks' fx demand 
    * This should prevent pressure on forint - director 
    * Central bank to provide 3 billion euros in first phase 
    * For a related factbox, see  ID:nL6N0RP18Y  
 
 (Adds comments, details) 
    By Krizstina Than and Gergely Szakacs 
    BUDAPEST, Sept 24 (Reuters) - Hungary's central bank has 
allocated 3 billion euros ($3.9 billion) of its reserves to help 
commercial banks compensate customers for loan charges that the 
government and courts have deemed unfair, it said on Wednesday. 
    The central bank said it would also be ready to provide more 
foreign currency for the bank sector for a planned conversion of 
households' foreign currency loans into forints. 
    This additional amount could reach 9 to 11 billion euros 
depending on the details of the planned conversion, which are 
not known at this stage, the bank's managing director Marton 
Nagy told a news conference. 
    Falls in the value of Hungary's forint currency have left 
hundreds of thousands of people with foreign exchange mortgages 
that are more expensive than they bargained for. 
    The National Bank of Hungary has changed its toolkit to meet 
banks' rising foreign currency demand in order to prevent 
pressure on the forint currency. 
    "The aim of the NBH's programme is to ensure that the 
phasing-out of household foreign currency loans is carried out 
in a rapid and well-organised manner, safeguarding the stability 
of the financial system and without significantly affecting the 
exchange rate of the Hungarian forint," the central bank said in 
a statement. 
    Hungarian households' Swiss franc and euro mortgages, which 
the government plans to convert into forints next year, are 
booked as forex assets on commercial banks' balance sheets. To 
be able to close these positions, banks will need foreign 
currency when the conversion comes. 
    They will also need foreign currency related to refunds to 
clients on past loans under legislation which parliament is 
expected to pass later on Wednesday. 
    If they bought euros and Swiss francs in the currency market 
the forint would fall, so the central bank will step in, using 
some of its reserves which stood at 35.5 billion euros at the 
end of August. 
    The bank will launch two new facilities from Oct. 13 -- a 
spot euro sale transaction facility conditional on reducing 
short-term external debt and a longer-term foreign currency swap 
transaction combined with a spot euro sale. 
    In case of the conditional instrument, banks must reduce 
their short-term external debt by as much as half the foreign 
currency received, the bank said.   
    The central bank said its reserve adequacy must be 
continuously maintained throughout the programme, which runs at 
least until the end of March, 2015. 
    Nagy said the second, long-term foreign currency swap tool 
means the central bank's reserve will drop only gradually over 
1-2 years. This ensures that Hungary's vulnerability will not 
increase due to the reduction in reserves, Nagy said. 
    At the moment, the bank's reserves comfortably cover 
Hungary's short-term external debt. Investors who finance 
indebted Hungary follow the level of central bank reserves 
closely. 
    The first time banks will need foreign currency is when they 
settle refunds with their clients on past loans, in line with a 
June court ruling which said that banking practices had been 
unfair in some cases. 
    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 . 
 
(1 US dollar = 0.7785 euro) 
 
 (Reporting by Krisztina Than and Gergely Szakacs; Editing by 
Ruth Pitchford) 
 ((gergely.szakacs@thomsonreuters.com; +36 1 327 4748; Reuters 
Messaging: gergely.szakacs.thomsonreuters.com@reuters.net)) 
 
Keywords: HUNGARY FXLOANS