Budapest, December 16 (MTI) – Hungary’s Supreme Court, the Kuria, on Monday said that lending in foreign currency and related contracts are legal, and the client should bear the risks related to exchange rate fluctuations.
Banking Association secretary general Levente Kovacs said the ruling proved banks had been in the right all along.
Clients took out loans with better conditions than those applicable to forint loans at the time, so they should bear the risks involved, the head of the Kuria’s civil department, Gyorgy Wellmann, said after the court’s ruling, whose purpose is to provide guidance to the lower courts.
He added that the damaging consequences of economic and social problems linked to lawsuits filed by FX borrowers against the banks cannot be addressed purely by legal means, and the courts cannot be expected to solve the problem.
“Foreign currency loan contracts do not violate laws or moral rules purely because of their inherent exchange-rate risk. Neither do the cases count as usury or sham contracts,” the ruling said.
The court noted that banks have an obligation to inform their clients about the risks of exchange rate fluctuations and their effect on the monthly repayments. It added that if a court finds a part of a contract invalid, it should aim not to invalidate the whole contract but only the part in question.
The prime minister had earlier urged the Kuria to rule on the issue of troubled forex debtors to ensure legal consistency. Orban said that rulings in such cases had been controversial and insisted that “people cannot be put in a situation in which the government introduces a legal solution, then the courts pass opposing decisions which create legal chaos”.
The forint firmed from around 301 past 299 to the euro immediately after the much anticipated decision was announced. The share price of OTP Bank, Hungary’s biggest commercial lender, was up almost 4 percent after the announcement.
Hungary’s highest court has taken the side of banks, Antal Rogan, head of the parliamentary group of the ruling Fidesz party, told a press conference in light of the Kuria decision. Rogan said the Kuria is expected to make other decisions on related issues, such as unilateral interest-rate changes to interest rates and exchange rate margins.
“Until we know the final legal situation, the broadening of the [government’s] rate-cap scheme will help everyone,” he said.
The opposition Socialists said that there were no further reasons to put off measures planned to help mortgage holders. Party lawmaker Gabor Simon said that the issue was not solely a legal one but had complex social and economic dimensions, and could not be addressed exclusively by legal steps or by passing on responsibility to the Kuria.
The opposition E14-PM party said that now the Kuria had made its ruling the government should no longer kick the problem further down the road but solve it in line with the rule of law.
The opposition LMP party said the Kuria’s decision was “regrettable”. LMP reiterated its proposal urging a ban on evictions in connection with defaulted forex mortgages. Andras Schiffer, the party’s co-chairman, said the bill tabled by two LMP lawmakers, Katalin Ertsey and Gabor Vago, would not allow banks to transfer defaulted mortgages to debt managers. In addition, courts should be looking at contracts as a whole when a case is filed to them, Schiffer argued.
The radical nationalist Jobbik party said the court ruling had sacrificed the Hungarian population to the will of the banks. Janos Volner, a spokesman for the party, said it is clear now that courts would not protect forex borrowers but instead the interests of banks.
Levente Kovacs, the secretary general of the Banking Association, told MTI after the decision that banks would follow the court ruling “to the letter”. He said the Kuria had solved many unresolved issues and legal loopholes, and that it ruled that foreign currency contracts are “live and legal”, which must be respected. He added that, at the same time, the banking sector understands the social difficulties which lie behind these contracts and will help alleviate these strains.
Photo: MTI – János Marjai