Hungarian banks prepared for sacrifice if package deal can be reached

Hungary’s banking system is willing to bear a sacrifice of several hundred billion forints over five years if a package deal can be reached on proposals submitted to the government, Hungarian Banking Association chairman Daniel Gyuris said on Tuesday.

Mr Gyuris declined to give a more exact figure on the amount that could be sacrificed.

The proposals, submitted to the government on Thursday, affect the management of non-performing loans as well as of solvent borrowers, and the bank levy, Mr Gyuris said. Another proposal would keep rules on the early repayment of foreign currency-denominated loans unchanged for the next two years, he added.

Under a government scheme introduced at the end of September, borrowers may repay their foreign currency-denominated mortgages in full at discounted exchange rates. Borrowers must opt to join the scheme by the end of 2011.

The National Bank of Hungary (NBH) and financial market watchdog PSZAF are participating in the talks on the agreement, Mr Gyuris said.

National Economy Minister Gyorgy Matolcsy said at the weekend that the government would form an opinion on the banks’ proposals in two weeks.

Mr Gyuris called the early repayment scheme "professionally indefensible", adding that it would further weigh on an economy where there is no growth in consumption or lending, an economy driven only by exports. But he conceded that an agreement containing the early repayment solution would still work.

Mr Gyuris said the establishment of credit ratings for all retail borrowers, not just those behind on repayments, would cause risk premiums to fall, resulting in lower APRs.

The expanded credit rating system is being established under changes made to regulations in November.

Mr Gyuris said regulations that established transparent pricing of loans and maximum interest rates were important, but he noted that Hungarian banks had already priced their loans based on a benchmark as a general practice.

"Forint loans can only be a realistic and competitive alternative to foreign currency-based lending in the long term if forint loan rates, together with interest rate subsidies introduced in January, do not exceed 10%," Mr Gyuris said.

He said the number of properties the National Asset Manager Company (NET) will have to buy from distressed borrowers is likely to be two, three or even five times the expected 5,000.

NET was established to buy the homes of troubled borrowers and allow them to continue to reside there as renters until they consolidate their financial position and can repurchase the properties. The government expects it to buy 5,000 properties by the end of 2014.