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Hungarian Curia decides on FX mortgage loan issue

Hungary’s Supreme Court (Curia) delivered its long-awaited decision on the fairness of bank loans today, upholding a previous ruling that found banks must use the official medium exchange rate of the National Bank of Hungary when calculating loans of foreign denominations.

The court finessed the trickier questions of whether banks can shift all foreign exchange risks to borrowers – and whether banks can unilaterally modify contracts. The court ruled that these matters depend on each specific loan contract and the kind of information the lenders provided before extending the loan.

Unilateral changes in a loan contract will only be allowed under very strict conditions, under the Curia’s ruling. According to an official with the court, the conditions are so limiting that very few unilateral contract changes will be allowed.

As for passing on risks, the ruling stated that banks cannot force borrowers to pay the cost of foreign exchange fluctuations unless the contract clearly stipulates its intention to do so in language that is understandable to the average consumer. estimated that the decision to uphold the requirement that banks use the official medium exchange rate could cost banks in the country a total of HUF 96 bln.

The costs of the rest of the ruling are hard to determine, as the final impact depends on the contents of several thousand different mortgage contracts.