Lenders allotted €7.8 bln at FX conversion tender

MNB

The National Bank of Hungary allotted a combined €7.834 bln to banks for the conversion of retail foreign currency-denominated loans at tenders on Monday The amount meets nearly all of banks' FX liquidity needs related to the conversion, the MNB said.

Banks were allotted €6.207 bln in an unconditional facility and €1.627 bln in a conditional facility.

The tender was the first one related to the loan conversion. It was held after the MNB agreed with banks to provide €9 bln from its international reserves to fully meet their FX liquidity needs related to the conversion, while banks committed to acquire the necessary FX from the MNB rather than from the market.

The government announced on Sunday that the conversion of FX loans into forint loans will happen at market exchange rates and will apply only to FX or FX-denominated mortgages. National Economy Minister Mihály Varga said that borrowers can opt out of the conversion.

In a statement published after the tender, the MNB explained how it calculated the €9 bln commitment, and why the actual volume necessary was almost met at the first tender. It said that it will hold another tender for eventual unfulfilled needs of banks on November 11, and will hold further such tenders only at individual requests.

The MNB explained that the stock of FX and FX-denominated mortgages reached HUF 3.3 trillion (€10.8 bln) at the end of September, and that compensation to be paid by banks under borrowers' relief legislation approved in the summer is expected to reduce the stock by more than HUF 500 bln (€1.7 bln).

The MNB said that the actual sum necessary could be lower, at about €8 bln, considering that the compensation could free up HUF 120 bln-HUF 180 bln (€400m-€600m) from the HUF 480 bln (€1.56 bln) of risk provisions booked on the affected loan stock.

Hungarian banks' total retail FX-denominated loan stock stood at just below HUF 3.6 trillion at the end of September, MNB data shows. The stock made up 53% of all retail loans outstanding.

In the conditional facility at the FX tender, banks buy spot euros from the MNB, with the euros bought rolled over in opposite-direction one-week FX swaps at the MNB until the euros are actually used. The condition is that banks reduce their short-term external debt by half of the amount of the euros actually used.

The unconditional facility is, from the banks' perspective, the combination of a spot euro purchase and an opposite-direction multi-currency interest rate swap (CIRS) expiring in 2015, 2016 or 2017.

The MNB said earlier it would provide euros in the conversion-related tenders at its latest official exchange rate. The MNB's international reserves stood at €34.2 bln at the end of October.

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