Hungary to propose first law on FX loans this week -minister (updated)

MBH Jelzalogbank Nyrt

25/06/2014 15:49

(Adds detail, more comments) 
    * First step will deal with exchange-rate spread, least 
costly item 
    * Next step in September, will address settlement of FX 
loans 
    * Measures could cost banks 400 bln forints, analysts say 
    * Government wants to get rid of FX mortgages by end of year 
    * OTP stock down 1.2 pct, underperforming market 
 
 (Adds detail, more comments) 
    By Gergely Szakacs 
    BUDAPEST, June 25 (Reuters) - Hungarian banks will be forced 
to pay back some of the money clients were charged on 
foreign-currency loans under the terms of legislation the 
government will propose this week, Economy Minister Mihaly Varga 
said on Wednesday. 
    A court ruled last week that banks overcharged borrowers for 
the loans in a number of ways  ID:nL5N0OX1JT . Prime Minister 
Viktor Orban's government wants to use that ruling as a way to 
get rid of as much as $15 billion worth of the toxic debt.  
    Hungarians took out the loans, mainly in Swiss francs, 
before the 2008 financial crisis, to take advantage of low 
interest rates. They lost out when the forint weakened, pushing 
many borrowers into default and causing grave economic problems. 
    Hungary's mainly foreign-owned banks fear any relief scheme 
could push them into losses. A previous measure in 2011 cost the 
heavily taxed sector about a billion euros. 
    Varga said the first batch of legislation would involve the 
exchange-rate spread applied in the loans - the practice of 
banks using different exchange rates when disbursing the loans 
and when calculating monthly instalments. 
    It was not immediately clear whether the first bill would 
also tackle the issue of interest rate increases on the loans. 
Varga's comments suggested that issue would be handled in the 
autumn in a separate step. 
    "The Supreme Court's decision has declared that banks acted 
unfairly with clients," Varga told a news conference. "The 
government wants to tackle the issue of the exchange-rate spread 
with the legislation, because this can be resolved with a 
relatively simple and quick calculation." 
    The exchange-rate spread represents just a fraction of the 
total increase in costs that borrowers faced over the years. 
Varga said the measure would involve foreign currency loans and 
leasing contracts as well, a wider set than previous indicated. 
    Varga said the government would draft a second batch of 
legislation in September to handle the settlement of the loans. 
The economy ministry will also start talks with the central bank 
to prepare for issues related to the process. 
    Local news website index.hu cited the Fidesz parliamentary 
group's leader, Antal Rogan, as saying the first round of 
legislation would be passed by July 4. Rogan was also quoted as 
saying the onus would be on banks, rather than borrowers, to 
prove that contract changes had no detrimental impact on 
borrowers. 
    Varga told Reuters in an interview on Monday the solution 
could come in several steps and the government aimed to make a 
proposal by the autumn. The proposed measure would not 
jeopardise the health of the banking system, he said, but would 
resolve the problem for good. 
    Some analysts have estimated that the government's new 
measures to help borrowers, including compensation for the 
exchange-rate spread and unlawful interest rate hikes, could 
cost banks about 400 billion forints ($1.78 billion), putting it 
on a par with the controversial 2011 relief scheme. 
    Shares in Hungary's largest bank, OTP OTPB.BU , was down 1.2 
percent at 1341 GMT. The broader market was down 0.6 percent.    
    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 = 224.81 Hungarian Forints) 
 
 (Reporting by Gergely Szakacs; Editing by Larry King) 
 ((gergely.szakacs@thomsonreuters.com)(+36 1 327 4748)(Reuters 
Messaging: gergely.szakacs.thomsonreuters.com@reuters.net)) 
 
Keywords: HUNGARY FXLOANS