Bank association chairman says agreement to ease Hungary’s Swiss franc debt problem - Reuters

The conclusion of an agreement between Hungarian banks and the government on a repayment plan for borrowers with foreign-currency-denominated mortgages on Thursday is expected to significantly alleviate Hungary’s Swiss franc debt problem, Hungarian Bank Association Chairman Patai Mihaly told Reuters.

 "As the Swiss franc problem improves, so will the risk assessment of the Hungarian economy," Mr Patai said, adding that the agreement paved the way for Hungary’s aid negotiations with international lenders, due to begin in January.

"This is a great prelude to a successful negotiation process between the government and the IMF/EU, which could temper the risk attached to Hungary, and we are certain it could affect the forint exchange rate and risk premia positively," Mr Patai stated.

Refering to the National Bank of Hungary’s Thursday’s statement that it can only issue the forex reserves necessary for the forint conversion of non-performing forex loans - which is part of the agreement - if the government pledges to replenish the reserves, the Hungarian Bank Association chairman said that was not likely to become a pressing issue. The conversion of delinquent loans will only reach about EUR 1-3bn, compared with well over HUF 30bn the central bank has in its reserves, he said.

Mr Patai said that rapid lending growth was unlikely to return to central Europe, including Hungary, as liquidity remains tight and efforts to boost economic growth may only counteract some of that crunch, Reuters reported.

"We have agreed to try and speed up growth," Mr Patai said of the agreement, which contains provisions that make any new lending to certain sectors deductible from the base of the country’s bank tax, which is the highest in Europe.

"We must accept that a new era has begun, an era of slow growth, in the economy and in credit volumes," Mr Patai concluded.