Hungary moves to make banks soften terms on FX and forint loans (updated)

MBH Jelzalogbank Nyrt

27/06/2014 16:41

* Government submits legislation to tackle toxic loans 
    * Tackles FX spread, unilateral interest and fee rises 
    * Spans both foreign currency and forint loans 
    * Later conversion into forints to be mandatory -PM Orban 
    * Government could discuss sharing costs of conversion 
 
 (Updates with details of legislation, market reaction, analyst 
comment) 
    By Krisztina Than and Gergely Szakacs 
    BUDAPEST, June 27 (Reuters) - Hungary's government moved on 
Friday to reduce bank charges on foreign currency mortgages, 
submitting legislation to parliament that could also help people 
with similar concerns about their forint loans. 
    The bill is the first step of a comprehensive relief scheme 
for Hungarians struggling to manage the foreign currency loans 
that were once popular for their low interest rates but turned 
sour when Hungary's forint weakened.  EURHUF=  CHFHUF=R  
    Prime Minister Viktor Orban confirmed that the government 
plans to resolve the problem of households' foreign currency 
loans by forcing banks to convert them into forints, which could 
be completed as soon as this year. 
    "The net impact of this legislation seems to be more 
unfavourable for both the bank system and OTP (Bank) than 
previously expected," said Akos Kuti, an analyst at brokerage 
Equilor. 
    The move to change the law follows a Supreme Court ruling 
that banks had used some unfair practices in charging for both 
foreign and local currency loans, such as unilateral rises in 
interest and fees.  ID:nL5N0OX1JT  
    Ruling Fidesz party lawmaker Antal Rogan has said the bill 
could be passed by July 4, before the summer recess. 
    At 1322 GMT, the forint  EURHUF=D3  traded at 309.23 versus 
the euro, weaker than levels before the legislation was 
published. Shares in OTP Bank  OTPB.BU  were 0.5 percent higher, 
underperforming the wider market, which gained 0.6 percent. 
    The draft posted on parliament's website says the exchange 
rate spread applied in foreign currency loan contracts - the 
practice of banks using different rates when disbursing loans 
and when calculating monthly repayments - was void. 
    It orders a recalculation of spreads within 90 days of the 
law taking effect, based on the central bank's exchange rates. 
    The bill also declares unilateral interest and fee rises in 
loan contracts, for both forint-denominated and foreign currency 
loans, unfair and void unless banks challenge this provision and 
prove their right within tight deadlines. 
    Before the bill was published, analysts had estimated the 
potential cost of the package at about or over 400 billion 
forints ($1.76 billion), putting it on a par with a 2011 relief 
scheme that cost banks about a billion euros ($1.4 billion). 
    "The bill seems very wide-ranging and is only the first step 
on the 'fairness' process of redressing contract and marking 
issues with debt contracts. As such it remains impossible to 
make a sensible calculation of the specific costs of the bill," 
said analyst Peter Attard Montalto at Nomura. 
    "This bill does seem to place a lot of pressure on the banks 
logistically to examine every contract in a very short period 
and with such a wide scope." 
      
    STABILITY 
    PM Orban told public radio on Friday that the government 
would seek to ensure that a conversion of the loans into 
forints, the second step of the programme to come in the autumn, 
does not undermine the stability of the banking system. 
    "The problem of foreign currency loans will be fully 
resolved when we make the conversion of the loans into forints 
mandatory under certain conditions, and this way foreign 
currency loans will disappear from Hungarian life," Orban said. 
    While the measures will again hit the bank sector, they 
could also remove a long-standing problem that has haunted 
Hungarians for years, causing grave economic problems. 
    The government would not share the costs of compensation, 
but could discuss sharing the cost of converting the loans.  
    "When we discuss the phasing out of foreign currency loans, 
when the conversion will have to be carried out at some kind of 
exchange rate - like it was during the final repayment scheme - 
there we will be able to take into consideration business 
aspects and aspects of bank stability," Orban said. 
    He said that he hoped the foreign currency loans' problem 
would be resolved once and for all, by the end of the year. 
    Banks in Hungary include units of Belgium's KBC  KBC.BR , 
Austria's Raiffeisen Bank  RBIV.VI  and Erste Bank  ERST.VI , 
Italy's UniCredit  CRDI.MI  and Intesa Sanpaolo  ISP.MI , and 
German-owned MKB Bank  BLGGM.UL . 
($1 = 227.20 Hungarian Forints) 
($1 = 0.7359 Euros) 
 
 (Reporting by Krisztina Than and Gergely Szakacs; Editing by 
Ruth Pitchford) 
 ((krisztina.than@thomsonreuters.com)(+36 1 327 4745)(Reuters 
Messaging: krisztina.than.thomsonreuters.com@reuters.net)) 
 
Keywords: HUNGARY FXLOANS/