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Majority of retail forex loans should be converted to forint loans, former central bank chief says

The majority of retail forex-denominated loans should be converted into forint-based loans, monthly repayment installments reduced by 30-40% and the moratorium on evictions gradually eliminated, former National Bank of Hungary governor György Surányi, economist György Barta and CIB Bank CEO Tomas Spurny proposed in a study published in fn.hu on Thursday regarding the handling of retail forex loans.

The authors said the responsible handling of the situation requires widespread cooperation, social responsibility and sacrifice from all those involved.

They propose that the bulk of forex-denominated loans should be converted to forints. To do this, the National Bank of Hungary (MNB) could buy (or swap) a large amount of Swiss francs for euros from the Swiss National Bank in an out-of-market operation. The amount should be enough to convert CHF-denominated loans into forint. MNB would than sell the Swiss francs to commercial banks in Hungary - also in an out-of-market operation but at the normal exchange rate. Commercial banks would sell the Swiss franc to their clients who could repay outstanding loans, and then commercial banks could use the Swiss francs received to repay their own Swiss franc-based interbank loans and/or close their open Swiss franc positions.

In a parallel move the MNB would provide long-term (3-5 year) forint loans to commercial banks at a fixed rate which they would pass on to their clients in forint, thereby replacing their former Swiss franc loans with forint loans.

As a result of the move, the risk carried by forex lending would be eliminated from the system.

The authors also propose that clients' monthly repayment installments should be reset to the level before the crisis by reducing them by 30-40%. This could be done through state government subsidies, extension of the maturity, and commercial banks would also provide their own interest subsidy. Borrowers who pay their installments on time would also be offered the benefit of reduced installments, the study said.