Hungary to help banks find euros, Swiss francs to ease mortgage burden (updated)

MBH Jelzalogbank Nyrt

24/09/2014 18:32

* Central bank ready to provide FX 
    * 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  
 
 (Recasts with analyst comments, forint) 
    By Krizstina Than and Gergely Szakacs 
    BUDAPEST, Sept 24 (Reuters) - Hungary's central bank 
explained on Wednesday how it plans to extract households from 
expensive foreign currency mortgages while providing some 
support to the forint currency and to the banks that lent the 
money.   
    It will use billions of euros from its reserves to satisfy 
commercial banks' need to comply with government measures to 
help borrowers, the bank said on Wednesday. 
    Commercial banks operating in Hungary will need the currency 
this year and next to refund clients for charges on past loans, 
and for a planned conversion of once-popular Swiss franc and 
euro-denominated loans into forints. 
    The National Bank of Hungary will allocate some of its 
reserves to banks, protecting the forint from the severe selloff 
that would slash its value if banks had to sell the local 
currency to buy billions of Swiss francs and euros. 
    Prime Minister Viktor Orban wants to eliminate the 
originally low-interest foreign currency loans which many 
Hungarians took out when exchange rates were were more 
favourable.  EURHUF=   CHFHUF=  
    But the bank will have to tread carefully not to scare off  
investors who finance Hungary's debt. The bank has about 36 
billion euros ($46 billion) of reserves now, which comfortably 
cover Hungary's short-term external debt. 
    "This is a fairly constructive move by the central bank, 
given that it will smooth and quicken the process of redeeming 
or reducing the stock of FX denominated mortgages and will 
likely prove low risk and low cost," said Richard Segal, 
emerging markets analyst at Jefferies in London.   
    "This pool of 3 billion (euros) is a fairly small portion of 
its total reserves and experience suggests far less than the 
entire amount will be tapped." 
    While Hungary's reserves will fall, the scheme will require 
banks to reduce their own short-term external debt, which in 
turn reduces the level of required reserves. 
    Initially the bank has allocated 3 billion euros ($3.9 
billion) of its reserves to help banks compensate customers for 
loan charges that the government and courts have deemed unfair, 
it announced on Wednesday. 
    It will also be ready to provide much more foreign currency 
for the bank sector for a planned conversion of households' 
foreign currency loans into forints, managing director Marton 
Nagy told a news conference.  
    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, he said.  
    "I think this (reduction in reserves) is manageable from a 
stability point of view," said Janos Samu, an analyst at 
brokerage Concorde. 
    Samu said Hungary's short-term debt will fall this year when 
it pays off 2 billion euros from a loan received from the 
European Union in 2008, and inflows of EU development funds will 
help offset some of the outflows from the reserves. 
    The forint  EURHUF=  was unfazed by the central bank's 
announcement, trading at around 310.20 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 . 
     
    HAVING THE CAKE AND EATING IT 
    "Without this offer, the banks may have balked or delayed 
the negotiating process for longer," said Segal at Jefferies. 
    A resolution "could encourage them to begin extending credit 
at a faster pace," he added. "Moreover, the banks have agreed to 
give up something in return (reducing their own external debt)." 
    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. 
    "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. 
    The bank will launch two new facilities from Oct. 13 -- a 
spot euro sale transaction facility conditional on banks 
reducing their short-term external debt by as much as half the 
foreign currency received, and a longer-term foreign currency 
swap combined with a spot euro sale. 
    Nagy said this should ensure that Hungary's foreign currency 
reserves will drop only gradually over 1 to 2 years. 
     
(1 US dollar = 0.7785 euro) 
 
 (Reporting by Krisztina Than and Gergely Szakacs; Additional 
reporting by Sujata Rao in London; Editing by Ruth Pitchford) 
 ((gergely.szakacs@thomsonreuters.com; +36 1 327 4748; Reuters 
Messaging: gergely.szakacs.thomsonreuters.com@reuters.net)) 
 
Keywords: HUNGARY FXLOANS