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Forint conversion of forex debts planned

July 26th, 2013

A pro-government analyst welcomes the announcement that mortgage based foreign currency loans will be converted into forints and the modalities of the project will be negotiated with the Hungarian Banking Association.

Forex loans increased 150 fold from 2002 to 2010, as the National Bank kept Forint interest rates high in order to combat deficit-fuelled inflation. Banks encouraged households, local councils and enterprises to take out cheap credits denominated in foreign currencies, mainly Swiss Francs, but also Euros and Yen. But as these currencies appreciated vis-á-vis the Forint, the forex loans became increasingly expensive. By now only about 45 per cent of debtors are able to service them regularly. Partial measures have already been taken to bail out various groups of debtors, but on Wednesday, 24 July the government decided that at least the housing sector should be cleansed of forex loans. It is not yet clear how debtors, lenders and the budget will share the burden of the operation, but the government has decided to discuss the matter with the Banking Association.

In Magyar Nemzet, Anna Szabó argues that there is more at stake that the approximately 1.5 million households who are either still struggling with their mortgages or have already given up paying. If they go completely bankrupt, Hungarian producers and service providers would lose customers and thus the whole domestic market could implode. Banks would also lose not just the capital they invested in those loans, but they would also be hit by the general crisis and be forced to dump foreclosed property on the market – a sure way to drive down prices. With the more recent cut in the MNB’s official interest rate, and issuing bank chairman György Matolcsy’s “growth oriented lending”, Szabó expects an upsurge in HUF-based loans which will ultimately open new opportunities for the banks as well. Therefore she expects them to soberly take their share of the burden, as “after all, we are all in this together”.

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