RPT-UPDATE 1-Hungary flags state participation in FX mortgage relief
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* Government aims to phase out FX mortgages in 3-5 years -minister
* Official solution would cut monthly loan payments by 15-20 pct
* Banks fear new scheme could inflict further losses on sector
By Gergely Szakacs
BUDAPEST, Oct 25 (Reuters) - Hungary's government could use public funds in a package to help foreign currency borrowers, the economy minister said on Friday, signalling possible state participation in the scheme for the first time.
Prime Minister Viktor Orban has set a November 1 deadline for banks to devise their own comprehensive proposal to help borrowers who took out mortgages in Swiss francs and other currencies or face a government-imposed solution.
The remarks by Economy Minister Mihaly Varga could signal a shift in the government's stance, as officials have so far ruled out state participation in the relief scheme on the grounds that there was not sufficient room in next year's budget.
"We need to find a solution that will divide the burdens among the banking system, the state budget, and to a smaller extent, borrowers," Varga told public television in an interview.
He said the government package, which would be unveiled "promptly" after November 1, would phase out foreign currency mortgages within 3-5 years and cut monthly repayments.
"We would like to achieve that next year everyone should see their monthly repayments fall by about 15-20 percent," Varga said.
Hungary's mostly foreign-owned banks fear Orban, who will seek re-election next year, will impose fresh losses on them under any new scheme. They suffered hefty taxes and huge losses under a previous 2011 plan to help indebted borrowers.
Varga indicated that banks could face some losses as a result of the new scheme, although he ruled out a one-off, drastic solution that could destabilise the banking system.
"We would like to see a solution that also enjoys professional consensus," Varga said. "However, I am not naive: I think if this will cost banks even a single forint, they will not support it."
He said the chances of a drastic, immediate fix such as 2011's "final repayment" scheme were slim, as that could inflict losses of up to 3 trillion forints ($14.15 billion) on the banking system.
Varga did not elaborate on how much the government scheme would cost banks or the state budget.
Hungarians took out the loans, denominated chiefly in Swiss francs, to take advantage of low interest rates, but payments soared as the forint weakened after the 2008 financial crisis, causing widespread problems for borrowers.
Foreign banks whose Hungarian units may be hit by a new mortgage relief scheme include Austria's Raiffeisen and Erste, Germany's Bayerische Landesbank, Italy's Intesa Sanpaolo and UniCredit. ($1 = 211.99 Hungarian forints) (Reporting by Gergely Szakacs; Editing by Catherine Evans)