ECB says Hungary's new law could hurt financial stability

BUDAPEST Wed Aug 6, 2014 3:38am EDT

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BUDAPEST Aug 6 (Reuters) - Hungary's measures that force banks pay refunds to borrowers could negatively affect the stability of the Hungarian financial sector as a whole and could have spillover effects on the economy, the European Central Bank said in a legal opinion.

In its opinion dated July 28 but published on the ECB's website late on Tuesday, the ECB also said the retroactive effect of the Hungarian legislation did not seem to be in line with the relevant EU directive.

The ECB also said that "the potentially significant costs of the new measures may in some cases require material capital injections from the owners of the financial institutions."

The law drafted by Prime Minister Viktor Orban's government and passed last month will force banks to pay for unfair charges and interest rate hikes applied on loans in the past, putting big fresh losses on Hungary's mostly foreign-owned banks.

(Reporting by Krisztina Than and Sandor Peto)

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