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Unified restructuring of local govt debt unnecessary, says banking association

The Hungarian Banking Association (MBSZ) said in a statement on Wednesday it believes any discussion of a unified restructuring of local government debt is unnecessary and in large part impossible to undertake.

Association chief secretary Levente Kovács said National Bank of Hungary (MNB) data show local council debt stood at HUF 1,017 billion on June 30 or about 4% of GDP, in line with the European Union average. The data also show the percentage of non-performing loans in banks' municipal loan portfolios is just over half a percent, he added.

About 20% of local councils' stock of debt is denominated in foreign currency, MNB data shows.

Some municipalities last week urged the government to mediate with banks to achieve a moratorium on principal repayment on their foreign currency-denominated loans. A big part of local council debt is denominated in foreign currency, mainly in the Swiss franc, which has firmed markedly since the debt was taken on.

In the recent period, many local councils, with the cooperation of their banks, have successfully restructured their existing debt servicing to conform to their current financial position, the statement said. The association said it recommended that local governments start talks with their own banks.

János Lázár, head of the parliamentary group of the ruling Fidesz party and mayor of central Hungary's Hódmezővásárhely, excluded the possibility of an "unconditional" consolidation of local government debt, in an interview published in daily Népszabadság on Saturday.

Instead, Lázár urged debt-burdened municipalities to seek individual solutions and negotiate with banks to reschedule repayments, just as his own city had done.

Economic research institute GKI said in an analysis published on Wednesday that 99 of Hungary's 3,200 local government's account for most outstanding municipal debt. GKI put local councils' debt-to-revenue ratio at 36%.