Hungary will not wait for elections with FX loan relief measures - official

Fidesz party Vice Chairman Lajos Kósa was asked yesterday whether there will be yet another round of utility tariff cuts and an assistance programme for people holding foreign currency mortgages before the elections. To the former he replied: “our job is not done yet" and it needs to be monitored continuously how retail utility prices turn out. As regards a relief package for FX debtors He said there will “definitely" be steps taken before the elections, local newswire MTI reported.

According to Reuters, Kósa noted measures will be taken “because this is not linked to the elections."

"There are already Hungarian court rulings saying... that this (foreign currency loans) is an ill-conceived product and therefore we have to resolve them," Reuters cited him as saying.

The government has urged courts to create legal clarity so it can move ahead with its plans to completely undo the once popular loans in which mortgages are set in foreign currencies. Many went sour when Hungary's forint weakened.

The government first gave banks until 1 November to modify their FX loan contracts to the benefit of the borrowers, threatening them that if they fail to comply, the cabinet will unilaterally take regulatory steps. As the deadline lapsed, lawmakers - at the proposal of Fidesz - extended the exchange rate cap scheme (in place since April 2012) to those with payments overdue by more than 90 days, those already in the payment assistance programme and those who had taken out loans of over HUF 20 million.

This, however, was aimed to be only a temporary solution. Citing legal uncertainties government politicians said a comprehensive solution will be found only after the Curia (Hungary’s Supreme Court) brings a ruling on questions related to FX loans.

Among the issues which the Court will discuss, there is the nature of the FX loan (is it a forex or a local currency loan); whether accurate information was given to the client at the time the loan was taken out; and what tools the courts can use to remedy a contract that was deemed invalid.Since then the cabinet has also requested an opinion by the Constitutional Court (which has not yet formulated one yet) and it has also turned out the high court will start to sit on 16 Dec in consideration of the FX loan issue after their pronouncement of the metric they will be applying to their deliberations.

Our sources at banks said the pending decision by the Curia weeks before closing their books causes immense uncertainties for the financial institutions, as the ruling could have a negative impact on the sector from zero to several hundred billion forints. Needless to say, auditors are also keeping a very close eye on the decision. At this juncture, however, it is impossible to predict whether the court’s decision or the subsequent measures by the government (before the elections) will come with a bigger bang.

At this point it seems likely to him that once the legal uncertainty is lifted, "there may well be another package to assist FX debtors ahead of the elections," commented Pasquale Diana, a London-based analyst at Morgan Stanley, in a recently published research note.

"If the banking sector is forced to suffer further significant losses, that could be a catalyst which may under a given scenario trigger a fast (consolidation) process," OTP Bank Deputy CEO László Bencsik told a business conference at the end of November.

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• economy,
• utilities,
• banks,
• mortgage,
• foreign currency