This week: Gov’t, banks weigh options on FX loans

Issues

EDITORIAL

When the Supreme Court of Hungary (Curia) made its long-awaited decision on the “fairness” of foreign exchange loans on Monday, it felt like the judges avoided the hardest question: What can be done to reduce the pain that average Hungarian mortgage holders feel when the value of the forint drops relative to foreign currency?

The decision means that banks will have to compensate some customers in certain situations, depending on the content of individual contracts. According to estimates, the court's ruling could cost Hungarian banks around HUF 100 billion. But the government is not satisfied that it gives enough protection to home owners. Right after the decision, Antal Rogán, head of the parliamentary group of Hungary’s ruling Fidesz party, announced that leaders would develop new legislation to ensure that mortgage holders hurt by the so-called FX loans would get some compensation, and that the loans would be phased out.

Before 2008, many Hungarians happily jumped in on the soaring real estate market and agreed to FX loan type mortgages, which were easy enough to repay when the forint was strong. After the world economic crisis, the forint dropped, the nominal cost of mortgage repayments rose, which meant the real cost rose for Hungarians: People who were earning forints suddenly found that their mortgage was taking a huge bite out of their monthly income. The government is understandably eager to help these people, but if the solution involves making banks pay more, there is a risk that banks will leave the country, stifling business because credit will be harder to obtain.

While the proposed new regulations are still being formulated, and the government says it is too early to make an estimate, observers have already calculated that new legislation could cost banks here approximately HUF 400 bln.

Hit by special bank taxes, and other government measures, banks have been downscaling in Hungary since 2010. János Lázár, head of Prime Minister’s Office, said in an interview published today that special taxes would stay, and more are likely in 2015.

The bank exodus continued this week, with K&H Bank announcing Wednesday that it would close nine branches and focus more on offering Hungarians online services.

But not all banks are panicking: CIB said it would stay in Hungary and would try to work with the government to find a solution to the FX loan issue.

For now, banks and mortgage holders can only watch and wait while Rogán and his staff prepare new legislation. He has promised inclusive consultations on the matter, but judging by the way Fidesz takes advantage of its two-thirds parliamentary majority to fast-track legislation, it seems likely that the FX loan legislation will be drawn up quickly, and will end up costing the banks money. 

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