Hungary's banks urge fair legislation on FX loans

BUDAPEST, July 1 Tue Jul 1, 2014 12:45pm EDT

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BUDAPEST, July 1 (Reuters) - Hungary's banks accused the government on Tuesday of holding them collectively responsible for borrowers' problems after shifts in the exchange rate soured once-popular foreign currency mortgages.

The country's Bank Association criticised several points in a proposed government bill, announced last Friday, which aims to reduce bank charges on foreign currency mortgages and also forint-denominated loans retroactively.

The new legislation, which parliament will likely approve on Friday, is the first step of a comprehensive relief scheme for Hungarians struggling to manage the foreign currency loans that were once sought after for their low interest rates but turned sour when Hungary's forint weakened.

The government plans to force banks to convert foreign currency loans into forints, to eliminate the problem.

Hungary's top court has ruled that banks used some unfair practices in charging for both foreign and local currency loans, such as unilateral rises in interest and fees.

The latest measures could push hundreds of billions of forints of losses onto the bank sector this year, analysts estimated. A central bank deputy governor estimated on Saturday that the costs could reach 2 billion to 3 billion euros ($2.7 billion to$4.1 billion).

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.

Levente Kovacs, chief secretary of the Bank Association, told a news conference that the bank sector would be able to bear new losses because its capital adequacy ratio was among the best in Europe. But he said it was too early to estimate the potential costs of the new measures.

"The bank sector will operate in a stable and predictable way in Hungary with any burden," he added when asked about the potential costs of new measures.

Kovacs also said any potential conversion of the foreign currency loans should be carried out at the same time as the other measures that aim to help borrowers.

"According to the opinion of the Bank Association, the settlement (of claims) should be carried out together with the conversion, as there is no point in separating the two (issues)," Kovacs said.

While the measures will again hit the bank sector, potentially deterring fresh lending, they could also remove a problem that has haunted Hungarians for years, weighing on the economy.

Earlier on Friday, the European Commission said Hungary should aim for foreign currency legislation that would not pose a threat to financial stability.

"The mission took note of the government's efforts to address the issue of foreign currency mortgage loans, but insisted on the need for a consultative approach and appropriate burden sharing between stakeholders on any government decision, in order to avoid moral hazard and endangering financial stability," the Commission said in a statement. ($1 = 0.7331 Euros) (Reporting by Krisztina Than; Editing by Ruth Pitchford)

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