BayernLB blames Q3 losses on Hungarian fx repayment scheme

Germany’s Bayerische Landesbank (BayernLB) attributed its third-quarter pre-tax losses of €92m to losses sustained at Hungarian unit MKB Bank as a result of the Hungarian government’s early repayment scheme for foreign-currency home loans, BayernLB said after publishing its Q3 earnings on Wednesday.

The government’s early fx repayment scheme launched on September 29 permits borrowers to make a full early repayment of foreign-currency-denominated mortgages at a discounted exchange rate. Banks are left to cover the difference between the discounted rate and market rates.

BayernLB, which posted profit of €95m in the second quarter, said that MKB Bank had pre-tax losses of €186m in the first three quarters of 2011.

In a statement posted on BayernLB’s website, the bank termed the early final-repayment scheme to be "a confiscatory-like intervention in the contractual relationship between the Bank and its customers in Hungary." The bank added that "This will have a large negative impact on the banking sector, as the banks will have to bear the loss resulting from the difference to the market exchange rate. The Hungarian subsidiary MKB has established precautionary provisions of €108m, which weighed heavily on BayernLB’s reported third-quarter losses of €92m. Had it not been for this politically motivated act, BayernLB would have posted positive results in the third quarter as well."

BayernLB said that the euro-zone debt crisis as well as bank levies in Hungary and Germany also exercised a negative impact on its third-quarter results.