New contracts in exchange rate cap scheme drop sharply in August

MNB

The number of new contracts signed under an exchange rate cap scheme, that aims to make repayments for retail borrowers with FX loans easier, dropped 66% from July to 417 in August, fresh data from the National Bank of Hungary (MNB) show. New contracts fell every month since April, when they more than doubled.

Borrowers accounting for 41.3% of Hungarian banks' foreign currency-denominated retail mortgage loans have joined the scheme by the end of August. The ratio rose slightly from 41.2% one month earlier. The number of participants joining the scheme peaked at around 18,000 in June 2012, dropped to nearly zero by August 2013, and rose slowly again after eligibility was broadened in November 2013 to include borrowers with non-performing loans and ones participating in other borrower assistance programs.

Under the scheme, borrowers' repayments are based on the exchange rate cap until maturity or for a period of five years. The difference between the capped rate and market rates is placed on a technical account for repayment later. The MNB data show the number of contracts signed to join the scheme between April 2012 and August 2014 came to 179,905. Including contracts signed under an earlier such programme, the number reached 185,617.

The value of participants' loans came to HUF 1.5256 trillion at the end of August. Cheap, Swiss franc-based loans were once the most popular retail lending product in Hungary, until the weaker forint caused repayments to grow, pushing many households close to default.

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