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FX loan repayment plan is blow to bank sector - analysts

MNB

A government plan to allow Hungarians with foreign currency-denominated mortgages to repay their loans in a single installment at a fixed exchange rate that is better than the market rate will hurt profits, eat up some banks' capital and could cause lending activity to slow further, analysts told MTI on Monday.

MPs of governing Fidesz-KDNP made the proposal on the fixed rate repayments on Friday and Prime Minister Viktor Orbán outlined it as part of the government's National Protection Plan in parliament on Monday.

György Barcza of K&H Bank said the plan would significantly hurt banks' profits. It could soak up some banks' capital, causing a drop in lending activity, he added.

The plan could cause demand for Swiss francs and euros to grow in the short term, weakening the forint, but it would reduce Hungary's exchange rate exposure in the long term, lowering country level risk, he added.

The plan does not require lenders to offer clients forint loans to repay their foreign currency-denominated ones, but competition in the sector will determine which banks offer their clients such an opportunity, he said.

Gergely Suppan of Takarékbank said that if banks do not offer forint loans to clients who want to repay their foreign currency-denominated loans, only borrowers with enough assets will take advantage of the plan. With the exit of these wealthier borrowers from banks' portfolios, the proportion of non-performing loans could grow, he added.

György Barta of CIB Bank said the plan would damage the sector even though banks are not required to offer clients forint loans to repay their foreign currency-based mortgages. He estimated one-tenth of borrowers could pay off their loans with their own assets.

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