Government replies to ECB on fx loans, cites legal precedent

Issues

The government has noted that court rulings against banks show a number of rules were broken in the course of foreign currency-denominated lending in a reply sent to the European Central Bank, daily Magyar Nemzet reported today.

The government believes the rulings in borrowers’ favor suggest faults with many more contracts, the paper said adding that similar rulings have also been made in neighboring Croatia.

The National Economy Ministry told Reuters yesterday it had responded to a request by European Central Bank (ECB) governor Mario Draghi for information regarding further measures to assist Hungarian borrowers with forex-based loans. It declined to provide additional details.

Austrian central bank governor Ewald Nowotny informed daily Der Standard earlier that Draghi had cautioned Hungarian Prime Minister Viktor Orbán against taking uncoordinated steps to provide assistance to FX borrowers.

Hungary’s government has said it will take unilateral steps to provide forex-based loan borrowers with further assistance if banks do not come up with such measures in consultations with borrowers by November 1.

Cheap, Swiss franc-denominated loans were once the most popular retail lending product in Hungary, until the forint weakened, causing repayments to increase and putting many households at risk of default.

Péter Darák, the head of the Kúria, Hungarys supreme court, said on Thursday that the court had no plans to put legal procedures on the agenda that could create a precedent for forex-based loan borrowers. He told public television station M1 that there were just two tangentially related cases the Kuria was considering.

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