The National Bank of Hungary (MNB) will sell euros to banks that have retail FX mortgages regularly at tenders held weekly or, if needed, more frequently between October 3 and February 29, 2012, the MNB announced on its website on Friday.
The euro sale tenders are designed to provide banks with the necessary foreign exchange to meet borrowers demand for early full repayment of FX mortgages at at a discounted exchange rate under the government's recently launched repayment scheme. Borrowers may apply to parttake in the scheme until December 31 2011, and must complete the repayment within 60 days from application.
The MNB will publish information of the volume approved at the tenders on a monthly basis, parallel with the publication of its statistical balance sheet, with the first publication on November 14.
The maximum value any one bank may purchase at the tenders combined is the stock of retail foreign currency denominated mortgages it held on August 31, 2011, calculated into euros at the MNB's official HUF/€rate on that day.
The tenders will be free tenders, with bids accepted starting from the highest exchange rate, with settlement at the exchange rate specified in the bid.
The banks will receive the euros bought at the tenders only when they actually make repayments related to the early fx retail loan repayments, and up to that point the MNB will automatically roll over the euros purchased in spot/next EUR/HUF fx swaps.
In the case of non-euro foreign currency mortgage repayments, the MNB will calculate the euro used up from the swaps using the October 3, 2011 cross rates. About 95% of Foreign currency-based loan stock is denominated in Swiss franc.
The MNB will make settlement on payment after payment (PaP) basis.
Banks will have to exchange any unused euros back into forints with the MNB between March 1 and March 14, 2012.
A condition for banks to participate at the tenders and to use the foreign exchange purchased there is to report data on fx loan final repayments, the related fx and forint loans and the components behind the changes of their foreign liabilities weekly, the bank said.
Banks will also has to undertake that if they pay back foreign liabilities related to the early mortgage repayments, they will repay short-term (within-one-year) foreign liabilities in the first place.
The MNB may exclude the banks not meeting the conditions from further tenders and may exchange back the foreign exchange in the revolving swaps at the EUR/HUF rate used by the given bank or the actual market rate whichever is the lowest.
MNB governor Andras Simor said last week that the MNB would provide banks with foreign currency from its international reserves based on demand in order to dampen the significant stability risk involved in the scheme.
Based on an MNB estimate that about HUF 1,000bn-1,100bn or 20% of retail forex lending stock will be repaid under the scheme, MTI calculated that demand for foreign exchange created by the early repayment scheme could reach €3.8bn, at current exchange rates, or a bit more than 10% of the MNB's €37.6bn of foreign exchange reserves at the end of August.
Foreign currency-based loans account for 70% of all retail lending stock at present, PSZAF said.