Analysts' views differ on FX conversion effects

MNB

Analysts interviewed by MTI on Sunday gave differing views on how successful the forint conversion of foreign currency loans could be. The conversion will happen at a market exchange rate, it will apply to retail FX mortgages, and borrowers can opt out of the conversion at will, it was announced on Sunday. 

András Balatoni of ING Bank said borrowers would be happy to opt for the forint conversion to reduce their foreign currency exposure. He noted that foreign currency borrowers are also receiving a "gift package" as their principal debt will fall by a combined HUF 850 bln with compensation due on banks' unilateral contract changes and the FX margin they used.

Interest rates also fall and their repayments will be 25-30% lower. Balatoni said it is positive that the decision places no further burdens on the shoulders of either the banks or the state. It is also positive that the conversion will not cause a forint weakening as part of the central bank's international reserves will be used to meet foreign currency requirements.

On the other hand, Gergely Tóth of Buda-Cash Brókerház said he is skeptical as to whether foreign currency loans can actually be phased out definitively with the forint conversion at market rates. He said borrowers may not be willing to realise the losses resulting from the difference between the current exchange rate and the one effective at the time of borrowing

Tóth pointed out that the Swiss franc loans had been taken out at an average of HUF 160-165 compared to the current exchange rate of around HUF 255, and loan holders may not wish to realise the exchange rate loss of about HUF 90. He noted that many borrowers did not join the early repayment and exchange rate cap schemes, which were far more attractive options. He said that if the forint conversion is not compulsory and takes place at market exchange rates, it is not too important as foreign currency loans can be converted to forint loans at any time at market rates. He added that banks could help the process by offering preferential forint loans.

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