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Simor warns against giving retail borrowers illusion of avoiding forex risk

National Bank of Hungary governor Andras Simor on Monday warned that any decision giving retail borrowers the illusion that exchange rate risks can be avoided could only cause harm in the long run.

Exchange rate risk can only be eliminated if the borrower cancels the foreign currency-based loan, Simor said when asked by MTI about a report the government is to fix a rate for repayments of such loans in an agreement with banks.

Daily Magyar Hirlap said on Saturday that a draft agreement between the government and banks would set the exchange rate on repayments for troubled borrowers with Swiss franc-based mortgages at HUF 190 to the franc, citing a copy of the document it obtained.

Retail borrowers with Swiss franc-based mortgages – more popular than forint mortgages before they were banned – saw their repayments rise as the forint weakened during the crisis, prompting Hungary's previous government to introduce moratoriums on foreclosures and evictions by lenders. The moratorium has been extended several times, most recently until July 1, 2011.