Final charge against foreign currency loans

The banking industry is about to take another blow after Economy Minister Mihály Varga announced that there would be a further, hopefully final measure implemented to completely eradicate foreign currency denominated mortgages in Hungary.

Having earlier stated that the banking sector has already been pushed beyond what it can bear, this time around, the Hungarian Banking Association seems more than happy to cooperate, and has drafted proposals of its own with the aim of swaying the government towards less drastic solutions.

In the meantime, small groups of debtors are holding regular demonstrations, calling out politicians and bank leaders while defacing the storefronts of bank branches. Their demands to completely abolish the half a million already signed contracts are based on the notion that they were willfully misled into signing a loan policy without being properly informed of the risks stemming from exchange rate fluctuation.

“The only solution is complete abolishment [of foreign currency loans], since the people don’t have any money anymore to pay for anything. People have been robbed, they have lost their jobs, their health is ruined, they can’t pay anymore,” one of the organizers said.

Rival solutions

The government is considering a handful of options, including those proposed by the banks. Ultimately, the aim of any of the steps is to convert forex loans into forints to remove the risks stemming from currency fluctuations.

One of the suggestions would make the conversion utilizing beneficial funding from the central bank’s reserves. Another would entail drastically shortening the maturity of the existing policies, after which clients would enter a scheme similar to an existing setup for foreign currency loans, under which they would repay their debts in forints.

The government said that the banks’ proposals are a basis for further talks, but Varga’s immediate reaction indicates that the banks will have to take more of the stress.

“The banking association was aiming to protect the position of the banks. Whatever solution we eventually agree on can only be realized if we take part in it together and proportionally share the burdens,” he told reporters directly after negotiations with the banking association.

Despite the finance sector’s willingness to cooperate, there are concerns that the government will achieve its core aim by forcing a painful resolution through a sweeping conversion to forints. According to the boss of OTP Bank, Sándor Csányi, this would result in HUF 950 billion in losses for the industry: His company alone would have to swallow HUF 300 billion.

Csányi also stressed the need for the measure to be fair and to actually help those in need because of circumstances that they can’t be held accountable for, rather than others who took out loans for speculative purposes and are in no need of rescue. He added that the “hysteria” surrounding foreign currency lending dims the fact that just as many forint-debtors are also having trouble making ends meet and forking out monthly installments on time.

Mandatory rescue

One of the biggest differences between the previous bailouts and the relief efforts currently under consideration is that participation will be mandatory, as Economy Ministry state secretary Gábor Orbán said in an interview.

The government is resorting to the strict approach seeing that its previous program, which involves the banks and the state splitting the costs of monthly interests above a certain exchange rate to keep installments under check, only sparked muted interest. Only 40% of eligible debtors have so far applied for the “árfolyamgát”, despite the fact that the government and the banks actively campaigned to promote it.

Gábor Orbán added that the first measure, which allowed the lump sum repayment of mortgage loans at a fixed, beneficial exchange rate, was special because of the discounts involved. This time, the phase-out of foreign currency loans won’t necessarily incorporate that element, since it is likely to spark stability issues in the financial sector.

“Although the government is clearly on the debtors’ side, it cannot jeopardize the stability of the financial system while providing foreign currency debtors relief,” he told political weekly Heti Válasz.