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Government plans new law after FX ruling

MNB

Hungary’s governing party Fidesz will protect borrowers by submitting legislation to phase out FX mortgages, in response to the Curia (supreme court) decision on FX mortgage loans yesterday, according to parliamentary group leader Antal Rogán.

Rogán suggested that the new legislation would completely shelter Hungarian borrowers from fluctuations in the foreign exchange rate by forcing banks to bear the cost of these fluctuations. "The main principle is that borrowers should get back everything that banks unfairly took from them," he reportedly told a press conference.

The legislation could end up shifting the cost of foreign exchange entirely onto the banks, forcing them to pay billions of forints to their customers. Ultimately, Rogán said, the law would eliminate foreign-denominated loans.

While foreign-denominated loans that adjust for exchange rate fluctuations are safer for banks to give out, they can be very painful for Hungarians to repay when the value of the forint drops dramatically against the euro or Swiss franc. The government passed a law requiring banks to pick up much of the burden of the exchange-rate fluctuations, but the Curia’s ruling yesterday means that banks are only liable for covering a small part of the losses caused by currency fluctuations.

Although yesterday/s decision means Hungarian banks OTP may have to repay HUF 50-100 bln to its borrowers, the decision could have been much more damaging to OTP and other banks. In fact, OTP shares rose after the decision.

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