Economy 21 October 2011, 12:21pm

Hungary mulls new assistance package for troubled FX debtors

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Hungary’s Economy Ministry has confirmed that the government is working on new measures to further assist foreign currency mortgage debtors in repaying their debt early and at below-market rates. The intention has been first acknowledged by János Lázár, head of the governing Fidesz party’s parliamentary group. There is no final concept yet, but a number of ideas have been thrown on the table. They may extend the deadline of the final repayment, regulate interest rates but it was also raised as a possibility that a state intermediary institution will be set up to assist those opting for the repayment scheme.

The government is monitoring the problems that arise in connection with the repayment scheme and it is the duty of Parliament “to remedy these anomalies", government spokesman András Giró-Szász told journalists on Friday.

“The government will do its utmost to allow foreign currency debtors convert their debt to forint. The cabinet will decide on further solutions [...] in light of the take-up," the ministry told local news portal index.hu after it was asked what legal work is in progress to ease the rules on the lump sum repayment scheme.

Lázár has said several times over the past few days that the government wants to have as few foreign currency debtors in Hungary as possible by next spring - “one or two hundred thousand instead of 1.2 million." There is little chance of achieving this with the current regulations, despite the fact that, in theory, the law gives everyone who meet its prescribed conditions the opportunity to clear their outstanding debt.

Due to the legal framework no more than 735,000 FX debtors may participate in the early repayment programme (including those on the bed debtor list know as BAR list), even if borrowers that are not excluded by law all get forint loans. This way at least 265,000 FX debtors will remain, unless the government decides to extend the programme also on those who had taken out their loans at above CHF/HUF 180 and EUR/HUF 250

The number of those taking up the opportunity to clear their debt will not exceed 150,000-200,000 even according to the government’s own estimates and other forecasts. Economy Minister György Matolcsy wrote in a letter to his Austrian peer in September that the government expects only 10% (or 100,000) of the country’s foreign currency debtors to take advantage of the option to repay their outstanding debt an preferential exchange rates because the application and the repayment periods will be limited.

The ministry told index.hu that the information received on the repayment programme are analysed and the points where obstacles are seen are identified.

The government’s commitment in this regard is attested also by an idea to set up a state intermediary institution that would accept the repayment claims of FX debtors so that they could register for the programme not only at their banks. Under this scenario the state would co-ordinate the discussions in the repayment scheme, by which it would help mute the banks’ objections.

A more drastic idea is that this institution would manage the conversion and collect the exchange rate difference from the banks.

No final decision is expected before the Sunday EU summit, which is set to continue next Wednesday. The crisis meetings may be an appropriate forum for Hungary to informally test the waters for further measures in this regard. It may also play a role in the timing that global investor sentiment might lighten up a bit by next week.