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UPDATE - Banking association projects 1.5% growth in 2011-2012

The Hungarian Banking Association expects Hungary's economy to grow 1.5% in both 2011 and 2012, a projection distributed at a conference organized by business association MGYOSZ on Friday shows.

Instead of exports, increased investments and a restocking of inventories will be the engine of growth, according to the association. Household consumption could edge up.

The association expects propensity to make investments to remain low, and says the effects of conservative lending policy will be felt for a long time.

The association sees the unemployment rate remaining over 10% in 2012.

Hungarian Banking Association president Mihály Patai told the conference that although he was of the opinion that national interests would continue to strengthen in the coming years, this would not change the fact that the Hungarian financial sector will continue to be a part of the European financial sector.

"We are an inseparable part of the financial sector of the European empire and that is good news," Patai said.

Patai was optimistic about reducing the general government deficit, saying the mandate of the political elite to act right now was very strong.

Speaking about a government scheme allowing full early repayment of forex loans at a discounted exchange rate, for which banks must cover the difference, Patai said the scheme marked the point at which "the string can be stretched no further".

He said the association had decided to turn to the Constitutional Court on the matter of the repayment scheme and would consider which appeal to submit at a meeting of association leaders on Monday. The association is still considering whether to file an appeal with the European Court on the matter, he added.

Patai conceded that banks were expected to bring less liquidity into the country, but stressed that this was because money had become dearer on global markets. The present situation gives OTP Bank, savings cooperatives and the Hungarian Development Bank -- all Hungarian owned -- the chance to improve their market positions, he added.

Answering a question, Patai said the association would not exclude negotiations on a reference interest rate, a model used in many European countries. The association will continue professional talks on the matter with financial market regulator PSZAF, he added.