Cutting Hungary's FX loan stock significantly and reducing the country's FX exposure is in the best interest of Hungary, the government spokesman's office said on Wednesday, vowing the government's full support for a recently approved scheme that gives FX mortgage borrowers the option of early full repayment at preferential exchange rates.
The office's press release responded to announcements by credit-rating agencies earlier in the week that the early repayment scheme, in which banks bear all expenses, would significantly cut capital-adequacy ratios in the Hungarian banking system. Moody's placed seven Hungarian banks on review for downgrade due to expected losses stemming from the scheme. Fitch saw no immediate recapitalization needs due to the likely losses, but both agencies said the extent to which individual banks are affected may greatly vary.
"It is in Hungary's basic interest to eliminate the significant financial disadvantages stemming from the country's foreign exchange exposure in the near future, as it is to appropriately handle the FX loan crisis, affecting the lives of almost one-million families", the statement said.
The government spokesman's office recalled that in 2009 Moody's termed the economy's big decline, the big share of FX loans, narrow liquidity and big FX liabilities to be the main dangers in Hungary, adding that the government acted against these precise dangers when launching the early FX repayment scheme.
The government is of the view that any eventual rating downgrade of Hungary could not stem from the current economic and financial position, since the government is committed to meeting its earlier undertakings under all circumstances. In line with these, Hungary's state debt will drop further next year, from 73% to 72% of GDP, and both the 2011 and the 2012 fiscal deficits will remain well below 3% of GDP.
The statement cited IMF regional Mark Allen's remark that the European banking system rose to size which no more serves the welfare of the world or real economy growth. It said that IMF Managing Director Christine Lagarde expressed a similar view, stating that the only way to alleviate the financial crisis is for owners to conduct an urgent injection of capital into their banks.