Hungarian government to submit FX loan bill today

MNB

The Hungarian government is expected to submit a bill today on reparations for customers holding FX loans, based on the Supreme Court (Curia) decision on the matter last week. Details about the bill, revealed yesterday by Economy Minister Mihály Varga, mean that banks will be forced to pay approximately HUF 400 billion in remediation to borrowers, analysts say.

The possible effects of the bill are the following:

• All FX loans – Hungarian loans pegged to foreign exchange rates – would be covered by the bill.

• Under the law, banks would have to compensate borrowers for money they lost on open loans or on loan contracts that expired less than five years ago.

• The refund would be due in the fall.

• Any banks that made unilateral modifications in their loan contracts to adjust for foreign exchange fluctuations would have to repay any resulting increase in their customers' monthly installments.

FX loans are loans in which the Hungarian borrowers repay their debts at a rate pegged to hard currency. When the value of the forint drops relative to the euro, Swiss franc or whatever currency is stipulated in the loan contract, the amount that the borrower must pay goes up.

While the government would like to compensate the borrowers for money lost due to foreign exchange fluctuations, banks have argued that it is not fair to make the lenders bear this burden. Banks have already been stung by a special tax on their sector, and they complain that doing business in Hungary is becoming expensive. Some analysts say that forcing banks to pay massive compensation may make many international banks might decide to draw their operations from Hungary.

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