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UPDATE - European Commission concerned about Hungary FX mortgage repayment scheme

At first look, the European Commission has concerns about a plan by Hungary's government to require banks to allow repayment of foreign currency-denominated mortgages at a rate that is more advantageous to borrowers than the market rate, Commission spokesman Amadeu Altafaj Tardio said answering a question at a press conference on Tuesday.

It is still too early to announce a final stand on the plan, Tardio said. While the plan reduces household exposure to the crisis, it could have negative effects on the banking system, he added.

Prime Minister Viktor Orbán told MPs in parliament on Monday that the government supports a proposal to allow Hungarians with foreign currency-denominated mortgages the chance to repay their loans in a single installment at a fixed exchange rate that is well under the market rate.

The Commission's opinion is "very preliminary" and speaks to possible risks, Tardio said.

The Commission is in contact with Hungarian authorities on the planned measures, he said.

In its review of the Hungarian government's plan, the Commission will consider whether it is in line with key European Union policies such as the free movement of capital as well as rules on state aid, Tardio said.

Banks' commitments under the "Vienna Initiative", a crisis management framework established by banks systemically important in emerging Europe at the height of the crisis, should also be considered, he added.