Pullout of 2-3 banks would be ‘no tragedy’, says govt official

Steps Hungary's government has taken to solve the problems of retail borrowers with foreign currency-denominated mortgages is not expected to drive banks out of the country en masse, but "it would be no tragedy" if two or three disappeared from the market, Prime Minister's Office state secretary Mihály Varga said in an interview published in weekly Heti Válasz.

Hungary's government recently launched a early repayment scheme for forex mortgages at a discounted exchange rate, leaving banks to shoulder the cost.

"Banks acted inappropriately when they thrust foreign currency-based loans on their clients," Varga said. "In the interest of profit, they deceived people."

Varga also faulted the previous government for failing to take measures to slow the rapid growth of forex lending as the government in Poland did. While forex loans make up 6% of retail lending stock in Poland, the ratio is 40% in Hungary, he added.

Even though Hungary's government is reducing state debt, it appears the country's risk assessment will not improve as long as it has such huge exposure to foreign exchange rates, Varga said.

Forex loans were once the most popular lending product in Hungary because of their low interest rates compared to forint loans. But when the forint weakened, the size of repayments grew, causing many borrowers to fall behind on installments.