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Flashback to ’11? Possible relief on FX loans means BSE loss for OTP

Hungary is considering legislation that could modify the conditions of private foreign currency loans wholesale to help indebted households, Deputy Prime Minister Tibor Navracsics told HírTV on Tuesday. Many Hungarians took out loans denominated in Swiss francs before the 2008 global crisis and are now unable to repay them as the forint has fallen and the franc has surged. 

Hungary’s highest court, the Kúria, backed OTP Bank in a test case over a foreign currency loan contract disputed by one of the bank’s debtors this month, ruling that the contract was valid while also forcing OTP to repay some of the exchange rate fees it had charged its client. The decision disappointed many borrowers, some of whom protested outside the court building. 

The short-term result of Navracsics’ comments and the Orbán administration’s as-yet unsolidified plans vis-à-vis OTP loans was a hit to the bank’s stock on the Budapest Stock Exchange. "Sentiment is negative on stock markets today but the bigger driver was the comments by [Navracsics on forex loans],” Erste Bank analyst József Miró told Reuters. “The market does not know what exactly will happen – These comments boost uncertainty.”

Indeed, OTP shares were down 3.6% on the day to HUF 4,847, marking the largest drop in value since mid-March. Trading was heavy on OTP stock: Early morning trading saw OTP down by as much as 3.7% on the Budapest Stock Exchange and by noon CET, a rebound had brought OTP stock “up” to a minus-3.2% downturn at HUF 4,870. The blue-chip index saw a loss of 1.5% on the day. Despite the loss, Bloomberg analysts note that OTP shares have increased some 17% for the year thus far.

The announcement by government officials had some observers recalling a similar situation two years ago. Budapest-based Equilor Brokerage head of research Ákos Kuti had predicted a negative turn for OTP stock yesterday in light of Navracsics’ statement and reported that Equilor “expect[s] that the cabinet is preparing an intervention of the same caliber as the early repayment of 2011.” In that year, the sitting government forced a loss onto Hungarian banks after announcing that FX loans could be repaid at below-market rates.Economy Minister Mihály Varga yesterday confirmed that government officials were negotiating various issues with commercial banks and that the topic of FX mortgages is on the table.