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Banking association says early repayment scheme hurts more people than it helps

The Hungarian Banking Association believes a government scheme allowing early repayment of foreign currency-based mortgages at a fixed rate, discounted from the market rate, will hurt more people than it will help, the professional association told MTI on Wednesday.

The association also noted the macroeconomic risk, systemic risk and risk to growth posed by the scheme.

Legislation on the scheme was approved by Parliament late Monday.

The Hungarian Banking Association said on Wednesday it believed the legislation goes against the constitution and it would appeal to the Constitutional Court, as well as to European Union institutions.

The association said increased country risk and a weakening forint could lead to a rate hike, which would raise the cost of financing Hungary's state debt as well as raise the cost of borrowing for businesses and households, thus negatively affecting several million retail and corporate borrowers who have forint loans. There is also the danger that the general government balance could worsen and chances for economic growth narrow in an environment with rising interest rates, it added.

The scheme threatens predictability and legal security for both borrowers and lenders, the association said.

The association said it had already expressed its concerns about the scheme to Prime Minister Viktor Orbán and National Economy Minister György Matolcsy before legislation on the plan was passed. The association also asked the president of the republic to send the bill to the Constitutional Court for an opinion.

The association said its board is ready for any accord that aims to find a solution to the problems of retail borrowers, together with the government and in the framework of the constitution and the law.