Economy
Hungary country risk to decrease markedly over FX debt fix deal - Patai
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Hungarian households hold a total of about HUF 5 trillion worth of loans denominated in foreign currencies, mostly Swiss francs. The appreciation of the CHF during the euro crisis led to a massive rise in repayments and along with it an increase in loan delinquency and a big drop in domestic consumption, eroding Hungary’s economic growth.Patai told Reuters in an interview on Thursday that he now expected the country's Swiss franc debt problem to ease significantly.
"As the Swiss franc problem improves, so will the risk assessment of the Hungarian economy," Patai said, adding that the agreement paved the way for Hungary's aid negotiations with international lenders, due to begin in January.
"This is a great prelude to a successful negotiation process between the government and the IMF/EU, which could temper the risk attached to Hungary, and we are certain it could affect the forint exchange rate and risk premia positively," he said.
Hungary's 5-year dollar-based credit default swaps were bid at 563.7 points on Thursday, according to Markit data, down from 582.33 late on Wednesday and around 640 in late November, when Moody's downgraded the country's debt rating to junk.
However, the step will come at a total cost of HUF 350-400 bn over the five-year period of the agreement, which is likely to be front-loaded, he added.
"We expect most participants to sign up for the plan in the first year, year and a half," Patai said, adding that the HUF 600 bn price tag mentioned by Economy Minister György Matolcsy earlier on Thursday was a maximum charge that the banks will only incur if every client opts in to the programme.
With tens of thousands of delinquent borrowers likely to disappear from the banks' books, ultimately their risk provisioning may recede somewhat, mitigating their losses, he added.
He said he did not believe many of the 150,000-170,000 borrowers who are now at least 90 days behind on their obligations will resume regular payments, but added that their exit from the credit system would be easier to manage.
The agreement states that delinquent loans will be converted to forints automatically. The central bank noted that it would not be able to finance all new FX conversions without the government refilling its FX reserves.Patai said that was not likely to become a pressing issue as the conversion of delinquent loans will only reach about EUR 1-3 bn, compared with well over EUR 30 b the central bank has in its reserves.
He said that rapid lending growth was unlikely to return to central Europe -- Hungary included -- as liquidity remains tight and efforts to boost economic growth may only counteract some of that crunch.
"We have agreed to try and speed up growth," he said of the agreement, which contains provisions that make any new lending to certain sectors deductible from the base of the country's bank tax, which is the highest in Europe.
"We must accept that a new era has begun, an era of slow growth, in the economy and in credit volumes," he said.
"As the Swiss franc problem improves, so will the risk assessment of the Hungarian economy," Patai said, adding that the agreement paved the way for Hungary's aid negotiations with international lenders, due to begin in January.
"This is a great prelude to a successful negotiation process between the government and the IMF/EU, which could temper the risk attached to Hungary, and we are certain it could affect the forint exchange rate and risk premia positively," he said.
Hungary's 5-year dollar-based credit default swaps were bid at 563.7 points on Thursday, according to Markit data, down from 582.33 late on Wednesday and around 640 in late November, when Moody's downgraded the country's debt rating to junk.
However, the step will come at a total cost of HUF 350-400 bn over the five-year period of the agreement, which is likely to be front-loaded, he added.
"We expect most participants to sign up for the plan in the first year, year and a half," Patai said, adding that the HUF 600 bn price tag mentioned by Economy Minister György Matolcsy earlier on Thursday was a maximum charge that the banks will only incur if every client opts in to the programme.
With tens of thousands of delinquent borrowers likely to disappear from the banks' books, ultimately their risk provisioning may recede somewhat, mitigating their losses, he added.
He said he did not believe many of the 150,000-170,000 borrowers who are now at least 90 days behind on their obligations will resume regular payments, but added that their exit from the credit system would be easier to manage.
The agreement states that delinquent loans will be converted to forints automatically. The central bank noted that it would not be able to finance all new FX conversions without the government refilling its FX reserves.Patai said that was not likely to become a pressing issue as the conversion of delinquent loans will only reach about EUR 1-3 bn, compared with well over EUR 30 b the central bank has in its reserves.
He said that rapid lending growth was unlikely to return to central Europe -- Hungary included -- as liquidity remains tight and efforts to boost economic growth may only counteract some of that crunch.
"We have agreed to try and speed up growth," he said of the agreement, which contains provisions that make any new lending to certain sectors deductible from the base of the country's bank tax, which is the highest in Europe.
"We must accept that a new era has begun, an era of slow growth, in the economy and in credit volumes," he said.
