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FX loan settlement scheme announced

November 12th, 2014

Commentators welcome the government’s decision to convert FX mortgages into Forint loans at market rates.

Economy Minister Mihály Varga announced that loans denominated in foreign currencies will be converted to Forint credits at market rates. He said that practically all FX mortgages will be converted, since loan holders with incomes in foreign currencies will be the only ones allowed to opt out of the settlement deal. The National Bank will provide banks with the necessary foreign currency from its own reserve, in order to protect the Forint from depreciation. Opposition parties claimed in unison that a lower rate should have been imposed on the banks. The government argued that FX debtors will see their installments cut by at least one fourth, but it would be unfair to privilege them over forint loan holders.

After the conversion, Hungarian debt holders will not have to worry about currency exchange rates, Gergely Kiss writes in Magyar Nemzet. The conservative columnist acknowledges that it is impossible to predict whether the Forint will become stronger or weaker in the future, but he thinks nonetheless that it is wise to minimize losses and proceed with the conversion. Concerning the rate used in the conversion, Kiss notes that many people hoped for a favorable rate. But as banks have already accrued losses close to 1,000 billion Forint due to the retroactive interest rate cuts, a haircut of loans by using a conversion rate different from market exchange rates was not a real possibility, Kiss maintains.

Magyar Hírlap’s Szajlai contends that the use of a favorable rate at conversion could have ignited  panic in the exchange market, which could have, consequently, culminated in a full-fledged political and social crisis. The government’s decision to use market rates in the conversion of FX loans sends the clear message to investors that it is committed to a responsible and cautious economic policy, Szajlai concludes.

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