Hungarian central bank sees cost of FX loan bill surging - paper

BUDAPEST, June 28 Sat Jun 28, 2014 7:41am EDT

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BUDAPEST, June 28 (Reuters) - Legislation to reduce customers' charges on foreign currency mortgages in Hungary could costs commercial banks more than expected, the central bank was quoted on Saturday as saying.

The government submitted a bill to parliament on Friday that said banks would have to repay certain charges on loans, after the Supreme Court ruled they had used some unfair practices in lending.

The bill said banks would have to repay the exchange rate gain from using different rates when disbursing loans and when calculating repayments.

It also declares unilateral interest and fee rises in loan contracts, for both forint-denominated and foreign currency loans, unfair and void unless banks challenge the provision by September, when a second bill will be introduced.

The bill is part of a package of measures the government plans to introduce to bring relief to Hungarians struggling with the foreign currency loans that were popular for their low rates, but turned sour as the forint weakened.

The banks could also be forced to convert the loans, many of which were in Swiss francs, into forints, possibly by as soon as the end of the year.

But the costs from Friday's bill alone could reach 600 billion to 900 billion forints ($3.97 billion), the bank's Deputy Governor Adam Balog was quoted by the daily Magyar Nemzet as saying, potentially twice analysts' estimates of 400 billion.

Balog said the measures would help banks get rid of toxic assets without hurting the stability of the sector, but may make some foreign bank owners rethink if they want to stay in Hungary. None of the country's banks will need to increase capital significantly, he said.

Hungarian bank taxes are already among the highest in Europe.

Banks in Hungary include units of Belgium's KBC, Austria's Raiffeisen Bank and Erste Bank, Italy's UniCredit and Intesa Sanpaolo, and German-owned MKB Bank.

Prime Minister Viktor Orban who came to power in 2010 has blamed banks for the foreign currency lending bubble that burst in the 2008 global crisis, and has called for an increase in Hungarian ownership in the banking sector. ($1 = 226.9529 Hungarian Forints) ($1 = 0.7331 Euros) (Reporting by Sandor Peto; Editing by Alison Williams)

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