Day of FX reckoning is here for banks

FX debtors could be saved before the end
of the year

The government has submitted to Parliament the new bill aimed at helping foreign exchange loan holders by settling certain issues in contracts signed with the banks in line with the Kúria’s (Hungary’s supreme court) recent legal uniformity decision.

According to the justification for the bill, the proposal seeks to eliminate unfair provisions but in a way that the retained contracts can still be fulfilled. If the bill is passed into law as expected this Friday after this edition of The Budapest Times went to press, it will void rate margins and the application of different rates for buying and selling foreign currency, and will ensure that the forint value of FX loans as well as instalments are calculated at the central bank’s official rate.
The same rule will apply to all fees and extra costs connected to the loan. The new legislation will stipulate that banks are primarily responsible for the removal of unfair terms from existing agreements. After the law comes into effect, banks will have to convert the loans and the repayments retroactively and settle accounts with borrowers.
Justice Minister László Trócsányi said the bill was the first step in a process which, including a second law in the autumn, will resolve the issue by the end of the year. The leftist E-PM alliance said the bill would not settle the problems of FX loan holders. Analysts polled by MTI state news agency agreed that the bill would impose bigger than expected burdens on banks.
Earlier National Economy Minister Mihály Varga told the press that addressing the situation of FX borrowers will be a two-step legislative process. The government’s position was that banks must repay “any amount illegitimately collected from deceived clients”. According to Varga, the law will be applicable to all forex loans and leasing agreements, and defining the actual amounts loan holders were entitled to would take place in the second step, details of which would be elaborated in September in cooperation with the Banking Association and the National Bank of Hungary.
Credit rating and economic analysis group Moody’s said the Kúria ruling increases the possibility that banks will have to make compensation payments of around EUR 1 billion, or about 11% of the banking system’s total capital. Moody’s said this estimate is based on the total amount of loans taken out in foreign currency and the average rate adjustments that banks have introduced on these loans since 2008.
Others estimate the effect of the bill to be higher. The repayment of exchange-rate margins could cost banks HUF 50-60 billion (EUR 163-196 million), Concorde Securities lead analyst Attila Gyurcsik told MTI, adding that the repayment of unilateral interest increases in accordance with the Kúria’s ruling could cost financial institutions an additional HUF 400-450 billion (EUR 1.29-1.45 billion). The projection of the National Bank of Hungary went as high as HUF 600-800 billion (EUR 1.93-2.58 billion).
In an interview with the daily Népszabadság, Varga said “no bank will go bankrupt” because of the government’s scheme to help troubled forex borrowers, but added that the government had no calculations on the exact amount banks would face. “The goal is that the package should incur no expenses for the government,” he added.

Varga: no bank
will go bankrupt

Orbán: era of ‘fair banks’ near
    
The era of “fair banks” could be approaching to replace unfairness, with the government’s new action plan on forex loans, Prime Minister Viktor Orbán said. The government has approved an action plan containing several steps to help forex borrowers, he told public Kossuth Rádió over the phone from Brussels, where he was attending an EU summit. In the first step the legal uniformity decision made by the Kúria, Hungary’s supreme court, would be incorporated into the legal system. A relevant bill will be submitted to Parliament this Friday, he said. Next, a law was expected to be passed in September stipulating that banks settle with clients. And finally, by the end of the year, a law on phasing out foreign currency loans will be passed, Orbán said. This legislation will call for the mandatory conversion of forex loans to forint-denominated ones, which is likely to offer a full solution to debtors, he added. 

Rogán: the state will “step in” on the side
of clients

Rogán: exchange rate losses to be shared
    
Banks and borrowers should share exchange rate losses when it comes to converting loans in foreign currency into forints later this year, the ruling Fidesz party group leader has said. Antal Rogán told public television MTV that current market rates should not be used as the basis for converting FX loans into forints. He said the state would “step in” on the side of clients, and that banks would have to bear their fair share of exchange rate losses. Rogán said every forex borrower who did not take part in the government’s early repayment scheme should expect to get compensation from their bank. He said the relief measures would apply retroactively without a time limit.