Market factors justify rise in forint loan rates, says banking association head

The Hungarian Banking Association is convinced that market factors were behind a recent rise in forint lending rates, Levente Kovács, secretary general of the association, told the business daily Napi Gazdaság on Tuesday.

The association is prepared to face any investigation, Kovács said, referring to a recent statement by a leading MP of the governing Fidesz party. Banks have strictly abided by the law on early repayment of retail FX mortgages, Kovács said.

A week ago Fidesz MP Antal Rogán said he would ask the chairman of the Competition Office (GVH) to investigate banks on suspicion of cartel activity related to rising forint interest rates after the launch of an early forex mortgage repayment scheme. The scheme gives borrowers the option to fully repay their foreign-currency-denominated mortgages at a discounted exchange rate. Lenders are covering the difference between the discounted exchange rate and the market rate.

Regional and global developments have justified the increased interest rates, Kovács said. Uncertainties with regard to the macroeconomic environment and banking competition has pushed up the highest forint deposit rates from 6%-6.5% at the start of the summer to 7.5%-8.5%. New lending requires new resources, and new resources have become more expensive, he said.

Kovács noted that the foreign owners of bank is Hungary had kept supporting their Hungarian units and Hungarian clients, and supporting the Hungarian economy as well through their business activity. Kovács asserted, however, that banks have "reached the limits of their ability to perform. It is not possible to spur economic growth while making it impossible for banks to operate."

As to discussions on the conditions of establishing benchmark-pegged lending, banks and the government could agree to use the interbank reference rates, such as BUBOR or LIBOR, as a peg to price long-term mortgages, to which the margin of banks is added, Kovács said. Consultations are now focused on what additional aspects have yet to be taken into account for forint- and fx-denominated loans.