Are you sure?

Banks cover almost 40% of early FX repayments from central bank euro tenders

Fresh data published by the National Bank of Hungary on Monday show Hungarian banks used euros purchased from the central bank to cover about 39% of early repayments of foreign currency-denominated loans under a government scheme in October.

The scheme, launched on September 29, allows full early repayment of forex mortgages at a discounted exchange rate. Banks are left to cover the difference between the discounted rate and market rates.

Borrowers must declare their intention to avail of the scheme by the end of 2011. Full repayment must be made within 60 days of the declaration.

The MNB launched euro tenders in October, selling banks euros for forints from its international reserves to help banks to acquire the necessary FX liquidity during the scheme. The MNB accepted €890m or HUF 262bn worth bids by banks at the tenders held in October according to figures published by the bank on Monday. However, settlement does not take place until repayment; thus, actual purchases of euros by banks came to €235m or HUF 69bn during the month, or 39% of all repayments as reported by financial market watchdog PSZÁF.

PSZÁF said early in November that repayments under the scheme came to HUF 174.8bn, at market rates, by the end of October. Borrowers repaid just HUF 130.6bn, because of the discounted exchange rates.

The discounted rate for Swiss franc-denominated loans, once the most popular lending product in Hungary, is 180 forints under the scheme, about 70% of market rate early Monday. The discounted rate for euro-based loans is 250, also well under the rate of about 315 on Monday morning.

The MNB said on Monday that euros sold in the tenders reduced its foreign assets as well as the liquidity of the banking system.

The MNB’s international reserves fell by €1.89bn to €36.74bn from the end of September to the end of October. Repayment of principal and interest on a €1bn eurobond at the end of the month was the biggest factor affecting the decline, but the early repayment scheme also reduced the reserves by €235m.