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UPDATE - Burden of fixed-rate forex loan repayment is shared; presents no systemic risk - PM says

MNB

The burden of a proposed plan by MPs of governing Fidesz-KDNP that would allow Hungarians to repay their foreign currency-denominated mortgages at a fixed rate in one installment is shared between borrowers and banks, and the plan presents no danger to the banking system, Prime Minister Viktor Orbán told Parliament on Monday.

The cabinet discussed the proposal on Sunday and found it is legally sound, Orbán said. Legislation allows Parliament to amend mortgage contracts, he added.

Banks and borrowers will share the burden and the risks under the proposal, as many borrowers took out their loan when the HUF/CHF exchange rate averaged HUF 150-160, the fixed rate for the repayments would be HUF 180 to the franc, and banks will carry any exchange rate risk over that, Orbán said.

The Swiss franc -- once the base for the most popular retail lending products in Hungary -- traded at 234 late Monday.

The government will not take any additional steps in the matter of foreign currency-denominated mortgages, Orbán said, adding that it decided against making it compulsory for banks to convert their foreign currency-denominated loan stock into forint loans or to provide forint loans to pay off the foreign currency-denominate loans.

Foreign-owned Hungarian banks have their parent companies to rely on, and the Hungarian state stands behind OTP Bank and FHB, Orbán said.

Addressing the possibility the plan could prompt foreign banks to cut on loans to their Hungarian units, Orbán said these foreign parent banks have already cut back on financing of their local units, and lending has dropped.

The government will require banks to peg interest rates on foreign currency-denominated loans to a benchmark, making the cost of borrowing more transparent. It will also require that charges on the loans be in forints if they cover costs to the bank that are also incurred in forints, he said.

The government will propose exempting cancelled debts from the personal income tax. It will also ask banks to compile a list of borrowers who make their payments on time.

If the international response is unwelcoming, the government will still take the appropriate steps, Mr Orbán said.

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