This way of handling things is absurd to the Hungarian Banking Association. Levente Kovács, the general secretary, complains that if the practice of the Hungarian banks is going to be influenced in an absolute and retroactive manner by a provision that did not exist earlier, it might be useful for 100,000 families but at the same time it will harm almost ten million other Hungarians.
Parliament has passed the law under which the government wants to put an end to the decade of foreign-currency loans in Hungary in one move: It will cost about HUF 1,000 billion for the banks to repay customers this amount, which the borrowers paid extra due to the increased instalments because of arbitrarily raised interest rates.
This amount will be credited to the debtors as prepayment, reducing the capital owed, thereby causing an average 25-30% decline of the actual instalments. This is just part of the story because the banks have almost doubled their interest rates since 2010, in many cases in order to partly compensate for their losses due to the numerous extra taxes and fees imposed on them.
The government also decided to remove the foreign-currency loans from the system, meaning converting them into forint-based loans. The Hungarian National Bank has already reserved the necessary amount from its foreign-currency reserve, but this process – in order to avoid a shock to the forint market – will probably take several years.
However, for the debtor it is very important when and at which exchange rate the conversion to forints will happen. If it does so according to the National Bank (recently the government has been literally accepting all their recommendations), the conversion will happen at the actual market rate.
This would mean that the losses due to the actual weak currency rate of the forint would be realised in one shot: for example, if someone took a foreign-currency loan in 2005/2006 for 20 years at an exchange rate of 265 HUF/EUR or 185 HUF/CHF, he will be suffering 20% (in case of a euro-based loan) or even 40% (in case of the most widely spread type of loans based on Swiss francs) of losses – practically forced by the law. The realisation will, however, only happen sometime next year.
On the saga of the foreign-currency loans
Prime Minister Viktor Orbán is calling it a constitutional ring fight before the courts, with him willing to force the banks to accept fair treatment. It’s doubtful, however, if he would have the guts to present his concept of the rule of law to a forum of citizens composed of those thousands of families who have been robbed of their possessions and their illusions as well.
The municipal elections will be this month, after which Orbán will be left alone for more than three years. This man has been ruling since the middle of 2010, considered by many as the saviour of Hungary. However, he did not manage to solve the problem of the foreign-currency loans in the past four years; he only made it worse due to the serious weakness of the forint exchange rate.
Fidesz likes to tell people that they inherited the problem of foreign-currency loans from the Socialists, who had led the country into bankruptcy. However, Fidesz also contributed to the bankruptcy of many families. While the Socialists were artificially keeping the exchange rate high during their debt policy, Orbán put the Hungarian currency permanently in a low state with his words and deeds. His conduct, which is so different in many ways from the former policies, made the foreign-currency borrowers into hostages.
The reason is that Fidesz conjured the so-called final repayment. The ones who were able to scrape together the money in one go got a discount of one third at the cost of the banks. The fact is that only the wealthy, the so-called “elite” of the country (at least 23% of the debtors), could save themselves this way, while the cost of the transaction was shared between the banks and those people who had to continue paying their loan in instalments – now they had to bear a higher burden.
There were some other phoney solutions, such as a residential home for families who were unable to pay their loan, which swallowed billions, and then the recent solution by the National Bank, the fixed exchange rate, which only postponed the solution of the problem for several years (for about one third of the debtors). While the politicians are wasting time from year to year with pseudo-solutions, the impacted families have to save every forint each month so that they can pay their rates.
The HUF 200 billion that National Bank Governor György Matolcsy is generously spending at the moment, earned from the bank’s exchange gains, was pulled out of the pockets of those debtors via the weak forint exchange rate, who are still able to pay their monthly instalments at present. The oh-so-troubled banks are relying on the last Mohicans who are still able to pay – funny that the banks only show solidarity once it comes to sharing their losses.