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UPDATE - Banking association chief reacts to PM bank comments

Hungary's banks have no knowledge of any new borrowing plans with regard to the state support program for borrowers struggling to repay their foreign currency-denominated loans because of the weaker forint, Hungarian Banking Association chief secretary Levente Kovács said on Wednesday, reacting to comments by Prime Minister Viktor Orbán.

Orbán said in an interview on public radio broadcaster MR1 that banks will have to share part of the burden of the support program for borrowers with foreign currency-denominated loans and that sharing this loss would be one of the most important tasks to complete in the autumn. He added that the program could be expanded with new elements.

The assistance program, launched on August 19, fixes the exchange rate for repayments on the loans and puts the difference between the fixed rate and the market rate on a separate forint account to be repaid later. The program's rate for Swiss franc-based loans –  once the most popular lending product in Hungary – is 180 forints to the franc, well under the market rate of around 234 late Wednesday.

At present, the establishment of an asset manager to purchase the homes of borrowers close to default is on the agenda, Kovács said. It is important that assistance go only to the poor, and that it be genuine assistance, he added.

The board of the Hungarian National Asset Management Company (MNV) on Monday approved the articles of incorporation of the National Asset Management Company, established as part of the assistance program for borrowers with foreign currency-denominated loans.

The National Asset Management Company will buy at most 5,000 homes from distressed borrowers until the end of 2014, according to a government decree published in July in the official gazette Magyar Közlöny.

The decree mandated the National Economy Minister to ensure funding for the National Asset Management Company's operation. It also reallocated HUF 2 billion from the budget chapter on the Office of the Prime Minister this year for the establishment and operation of the asset manager.

János Müller, the Hungarian Banking Association's chief advisor, told journalists on Wednesday that the asset manager would buy properties at prices well under their market value. Banks will also share the burden with regard to other elements of the assistance program: they may not pass on any costs resulting from the fixed exchange rate, they must pay the notary fee for changes to program participants' loan contracts and they must pay the state a guarantee fee, he explained. At the same time, the sector must pay a large-scale bank levy, he added.

Kovács said the Banking Association has no data on how many clients have opted for a fixed exchange rate under the state assistance program.

Answering a question, Kovács said he did not expect, and in fact excluded, any state intervention in interest rates. Müller added that a government decree published in December 2010 specifies the cases when banks may amend the rate of their loans.

He said the proportion of non-performing loans in the sector's portfolios has been determined by unemployment more, than by exchange rates.

Assessing the performance of the banking sector in the first half, Kovács said it was difficult give a balanced evaluation as traditionally the first half is strong on the revenue side and the second half strong on the cost side. There were not any big loss-makers in H1, he added.