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Hungarian banks to help FX borrowers

Issues

Impending measures to compensate foreign-currency borrowers for unfair damages could cost banks around HUF 400 bln, and they will have to foot most of the bill for reducing forex loan repayments and fixing them in forints, Reuters reported citing governing party MP Gergely Gulyás, head of the parliamentary legislative committee yesterday.

 In an interview with Reuters Gulyás said a uniformity ruling by Hungary's supreme court, the Supreme Court of Hungary (Curia) on Monday made clear that banks must compensate borrowers for unlawful interest rate increases, and for the unfair exchange rate margin applied on the loans. Banks applied different exchange rates when disbursing the loans and when calculating repayments.

The MP said settling these two issues could cost banks some HUF 400 bln in total, based on various estimates, though the government had not yet made calculations of its own.

Gulyás told MTI that it is too early to make concrete calculations with regard to the cost of the measures to help foreign-currency debtors, noting that he derived the figure of HUF 400 bln from estimates in the press.

Asked if lenders could bear this new burden he said: "We are confident. The same way as borrowers have managed to withstand these unlawful practices applied by the banks, banks will also be able to withstand the rectification of this."

Gulyás also said the as a result of new legislation, which he said parliament could approve in September or October, "Foreign currency mortgages as a product will cease to exist (by the end of 2014) and everyone will pay fixed monthly instalments in forints."

"We hope this will result in a meaningful decline in monthly repayments and even, in the best cases, in outstanding principal, as soon as this year," the Fidesz MP told Reuters.

He said the scale of the reduction in borrowers' payments had not been decided, adding that the state could in theory absorb some of the costs of this measure but that most would have to be covered by the banks.

The MP said the elimination of foreign currency loans would reduce the economy's exposure to investor speculation over the forint's exchange rate. He stressed that the government has no exchange rate target and as such, it does not aim to weaken the forint. Gulyás also said the elimination of the toxic loans could boost domestic consumption and help kick-start lending.

He said the solution will apply to everyone who held a foreign currency mortgage or home equity loan - loans amounting to about $15 bln based on central bank data, Reuters reported.

The Curia, Hungary's supreme court, declared in a legal-uniformity decision on June 16 that the application of an exchange-rate margin in foreign-currency loan contracts was unfair. The court also decided about the conditions under which court can scrutinize the fairness of exchange-rate risk and the conditions allowing for unilateral changes to contracts.

Fidesz party-group Chairman Antal Rogán said on Monday that a bill to compensate FX borrowers for all unfair damages pursuant to the Kuria's decision would be submitted to parliament this autumn.

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