CEE MARKETS 2-OTP, forint jump as court dispels fears over banks

Mon Dec 16, 2013 11:15am EST

Related Topics

* OTP rises 3 pct, court ruling dispels fears over FX
lending
    * Jury still out on banks, government watched -market
participants
    * Forint firms though Hungary and Serbia seen cutting rates

 (Adds court decision, market impact)
    By Sandor Peto
    BUDAPEST, Dec 16 (Reuters) - The shares of Hungary's biggest
lender, OTP, surged almost 3 percent on Monday in a sharp
rebound as a court ruling dispelled fears that foreign currency
loan contracts could be declared void en masse.
    The decision by Hungary's top court, the Kuria, also lifted
the forint by almost one percent against the euro.
    Other central European equity and currency markets were
mixed.
    The Kuria said lenders were not to blame for borrowers
losing out when exchange rate changes made their foreign
currency mortgages more expensive. 
    This was good news for the country's banks who would have
suffered billions of euros in losses if the ruling had gone
against them and the foreign currency contracts had been
declared void.
    They would have also needed capital injections from mostly
foreign owners.
    Before the announcement, OTP shares had been approaching
their lowest levels for two months.
    The forint firmed to its strongest against the euro
this month, triggering stop-loss deals between 299.50 and 300.
By late trade it retreated to 300.09, still up 0.4 percent.
    Hungary's 10-year government bond yield fell 14 basis points
to 5.66 percent.
    "But this is not the end of the story yet," one
Budapest-based fixed income trader said. "Fine, let us be
happy... but what kind of steps the government will take now, we
don't know."
    
    WEAK DOMESTIC DEMAND
    The government of Prime Minister Viktor Orban, facing an
election early next year, has said it is determined to provide
help to struggling holders of the foreign currency loans, and
could still impose a relief scheme on banks.
    The head of the ruling party Fidesz parliament group said he
was "disappointed because with this decision the highest
judicial panel has also sided with the banks". 
    Demand from households has been weak in Hungary for years,
like in most Central European economies. It has been recovering
only slowly despite personal income tax cuts at the price of
higher taxes on banks and other mainly foreign-owned sectors.
    The region's central banks, including Hungary, have been
cutting interest rates for two years to help domestic demand
recover and lift their economies from recession or a slowdown.
    Hungary's and Serbia's central banks are expected to cut 
interest rates further at their meetings on Tuesday.
  
    The forint still firmed. The dinar shed 0.1 percent
to the euro and the Czech crown eased 0.2 percent.    
    The Czech central bank will also hold a meeting on Tuesday
but it has already cut interest rates to virtually zero.
                      CEE MARKETS SNAPSHOT AT 1608 CET
 ************************** CURRENCIES ************************
                             Latest  Previous   Daily   Change
                             bid     close      change  in 2013
 Czech crown                 27.575    27.514   -0.22%  -9.16%
 Hungarian forint           300.090   301.380  +0.43%  -3.04%
 Polish zloty                 4.174     4.178   +0.09%  -2.39%
 Romanian leu                 4.454     4.451   -0.07%   -0.24%
 Croatian kuna                7.629     7.625    -0.06%  -1.02%
 Serbian dinar              114.850   114.750    -0.09%   -2.22%
 Note: daily change calculated from previous close at 1700 GMT
 **************************** STOCKS **************************
                             Latest  Previous   Daily   Change
                                     close      change  in 2013
 Prague                      963.74    955.78  +0.83%  -7.22%
 Budapest                  18759.88  18424.72   +1.82%  +3.23%
 Warsaw                     2430.63   2429.67   +0.04%  -5.90%
 Bucharest                  6310.08   6295.38  +0.23%  +22.54%
 ***************************** BONDS **************************
                         Yield    Yield    Spread    Daily
                         (bid)    change   vs Bund   change in
 Czech Republic                                      spread
   2-year                0.101    -0.073    -15bps     -7bps
   5-year                0.874    +0.048   +5bps     +4bps
  10-year                2.314   +0.040   +48bps    +4bps
 Hungary
   3-year                4.050     -0.060   +368bps    -7bps
   5-year                4.650     -0.150   +383bps    -15bps
  10-year                5.660    -0.140    +383bps    -14bps
 Poland
   2-year                3.000    0.000    +275bps    0bps
   5-year                3.540    -0.090    +272bps    -9bps
  10-year                4.360   -0.080    +253bps    -8bps
 ******************* FORWARD RATE AGREEMENTS ******************
                              3x6     6x9    9x12  3M interbank
 Czech Rep                    0.370   0.370  0.390   0.38
 Hungary                      2.905   2.975  3.055   3.17
 Poland                       2.690   2.710  2.790   2.65
 Note: FRA quotes are for ask prices
 
 (Reporting by Reuters bureaus; Writing by Sandor Peto; Editing
by Hugh Lawson)
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