(MTI) – Provisions in laws for remedying the situation of troubled borrowers who took out loans in foreign currency are not likely to cost Hungary’s banks more than 900 billion forints (EUR 2.9bn), a central bank official said on Wednesday.

Laszlo Windisch, deputy governor of the National Bank of Hungary, commenting on new guidelines promulgated by the bank on Tuesday, said the new calculation took into account the way in which the elimination of the exchange-rate margin would be implemented.

Sandor Csanyi, chairman and chief executive of OTP Bank, Hungary’s largest retail lender, said the new guidelines meant that at least a third of the Hungarian banking sector’s capital would be sucked away as a result of the package, and this would be seriously damaging to the economy. He noted too that OTP would prove before the law courts that it had acted lawfully and in good faith in connection with forex loan products.

In an interview to vg.hu, he added that the bank’s information to customers had been correct and he trusted that the courts would recognise that.

He said the central bank’s calculations in its guidelines on the exchange-rate margin were “surprising”.

Photo: viszavzsodor.blogspot.com

Budapest, July 15 (MTI) – Hungary’s courts are making preparations for a big wave of lawsuits filed by banks in connection with the government’s bailout scheme for borrowers in foreign currency, the daily Magyar Nemzet said today.

In Budapest 305 judges and a large number of clerks are awaiting legal action to be brought by banks against the state, Sandor Fazekas, the head of the Budapest Court of Justice, said. Only the Budapest municipal court is allowed to hear these types of cases in the country. Most of them are expected to be launched by August 20, Fazekas said.

One task of the courts will be to suspend some 4,000 ongoing forex loan cases, he said. These cases were started before a new law on a forex bailout passed in parliament on July 4.

A new type of forex lawsuit is expected to be launched by about 410 banks. In these cases the defendant will be the state, represented by the relevant ministry.

Lower courts must come to a ruling within a month.

Judges specialising in civic business cases and related personnel have been called on to cut their holidays short to complete the work, the paper said.

A law recently passed in parliament stipulates that different exchange rates applied in the disbursement and repayment of forex loans as well as unilateral changes to retail loans are void. Foreign-currency denominated loans will be converted to forint-based ones by year-end.

Banks refunds to clients are estimated at 700-900 billion forints (EUR 2.3-2.9bn) according to the central bank, unless they are able to prove in court the legality of their practices.

(MTI) – Parliament’s approval of a law based on the supreme court’s legal uniformity ruling on foreign-currency-denominated loans may open a new era of fair banking, Prime Minister Viktor Orban said on Friday.

Speaking at the opening ceremony of a pharmaceutical plant in Pilisborosjeno, outside Budapest, Orban called the move of “historic importance”.

From now on “people will see that it is not always the stronger party that is right. The weak can also be right, with the law and justice on his side,” Orban said.

Speaking at a press conference after the parliamentary vote on the FX law, Antal Rogan, the ruling Fidesz party’s group leader, said that the national assembly had done justice by passing the legislation.

The law, based on a June supreme court ruling, nullifies different exchange rates for disbursement and repayment of forex loans as well as unilateral changes to retail loans unless lenders successfully defend such changes in court.

All the money that was swallowed up due to the difference in the exchange rate and one-sided contracts with inflated interest rates will be returned with compound interest thanks to today’s legislation, Rogan said. The original conditions of a contract related to interest are thereby restored, he added.

Based on an average sized loan, a borrower will be able to claw back between 600,000 forints and one million (EUR 2,000-3,300) towards the end of the year. At the same time, the amount of interest repaid will be reduced significantly, Rogan said.

Two parliamentary decisions can be expected to follow. First it will be decided in what form amounts will be returned to borrowers. Second, a decision will be made on forint conversion. This is expected to happen in the autumn session of parliament, Rogan said, adding that the government would ask the Banking Association for consultations in the meantime concerning the system of terms and conditions.

He said that Fidesz was determined that the conversion of FX loans to forint ones should not be made at market rates but at a more favourable one based on the sharing of exchange-rate losses between banks and clients.

The first compensation transfers are expected to take place in November, he added.

Contracts for forex loans signed after May 1, 2004 are covered by new legislation, according to a last-minute change to the bill.

Other changes made shortly before the final vote included extending the period that lenders have to initiate court proceedings on unilateral changes to forint loans from 30 days to 90-120 days after the legislation comes into force.

The Banking Association said the law was inequitable since it requires principles to be applied retroactively over ten years by banks which have been under strict supervision during that period. No legislator, supervisory authority or court worked out such principles or made them known during that time, the statement said. The law threatens legal safety and could create uncertainty among investors, it added.

Analysts told MTI that the law, the first to be passed with the goal of helping out troubled borrowers, would put a bigger strain on banks than previous estimates had suggested.

Balint Torok of Buda-Cash Brokerage said what was already known is that the central bank’s mid-rate would be applied retroactively in place of the exchange-rate spread. Based on the law, every unilateral change to contracts signed since May 1, 2004 which raised such items as interest rates and costs is unfair, he noted. But what is new is that all types of FX loans will be subject to the law, not only mortgages. Taken together with other new provisions such as unfair practices relating to forint loans, too, the measures are expected to cost the banking sector up to 900 billion forints (EUR 2.9bn), he added.

Akos Kuti of Equilor Investments said the shares of the banks in question would be under pressure over the next one-and-a-half to two months.

Photo: MTI – Attila Kovacs

London, June 23 (MTI) – The recent ruling by Hungary’s Supreme Court that unilateral changes by banks to foreign-currency mortgage interest rates were unfair in some cases is credit negative for Hungarian banks but has potential upside longer-term implications, Moody’s Investors Service said today.

In its weekly Credit Outlook report released in London, the rating agency said it views the verdict as credit negative for Hungarian banks because it increases the possibility that banks will have to make compensation payments to mortgage borrowers of around 1 billion euros, or about 11 percent of the banking system’s total capital, “according to our initial estimates”.

“Our estimates are based on the total volume of foreign-currency mortgages and average changes in the mortgage interest rates introduced by the banks since 2008”.

Based on the share of foreign-currency mortgages in the loan books of commercial banks with Moody’s ratings, the banks that risk paying the largest amounts in compensation are OTP Mortgage Bank, FHB Mortgage Bank, Erste Bank Hungary and K&H Bank, the report says.

“We expect that the Hungarian government will introduce in the third or fourth quarter of this year new measures to ease the debt burden of the foreign-currency mortgage borrowers”.

Although a comprehensive solution to the problem of foreign-currency mortgages will impose considerable costs on banks, it will also reduce the risks of continued punitive measures by the government, and remove the moral hazard that has prompted many borrowers to fall behind on their repayments in anticipation of improved terms for their mortgages.

Such a solution would help constrain the ongoing rise in non-performing loans in Hungarian banks’ foreign-currency mortgage portfolios, which reached 23.7 percent at the end of the first quarter of 2014, Moody’s said.