UPDATE 1-Refunds could cost Hungary's banks 3 bln euros, taxes may be tweaked
(Adds comments from economy minister)
* Loan refunds estimated to cost about 3 bln euros to banks
* Forex mortgage conversion to start in spring of 2015
* Minor adjustment in banks' taxes could be necessary -minister
* No more fx bond issues planned this year and next
NYIREGYHAZA, Hungary, Sept 4 (Reuters) - Refunds to clients for unfair past lending practices could cost the banking sector in Hungary about 3 billion euros and the banks may get some "minor" relief from heavy taxes burdening them, Economy Minister Mihaly Varga said on Thursday.
After banks settle compensation payments with borrowers, foreign currency loans will be converted into forints in the spring of 2015 to ease risks to the sector, Varga told an annual conference of economists in eastern Hungary.
He said the 3-billion-euro figure was an estimate prepared by his ministry and the final amount would be known only after parliament decides on how banks are to settle with borrowers.
Hungary's top court ruled in June that banking practices had been unfair in some cases and the banks now had one last chance to challenge the findings in courts.
Varga said that once foreign currency mortgages are converted into forints, a significant risk will disappear from the bank sector and some modification of the taxes imposed on banks was also conceivable.
"These have to be reviewed and if justified, I think some minor modifications could become necessary, both concerning the special bank tax and the tax on financial transactions," he told the conference. "Also, (this is necessary) in order to help an expansion in lending in the coming period."
The planned conversion of a pile of household foreign currency loans into forints could impose further losses on Hungarian banks, which have already been paying one of Europe's highest sector taxes since 2010.
Many Hungarian households took out loans in foreign currency, chiefly in Swiss francs, prior to the 2008 financial crisis when the loans were cheap. But these loans turned sour when exchange rates shifted.
Banks operating in Hungary include Austria's Erste and Raiffeisen, Italy's Intesa and UniCredit , as well as Hungarian lender OTP.
In a further move to reduce its reliance on foreign funding, Hungary is not planning to issue any more foreign currency bonds this year and next year, Varga told the conference.
This is in line with earlier government plans to renew expiring debt increasingly in forints.
Hungary has central Europe's highest public debt - at over 80 percent of economic output - and a large chunk of that is financed by foreign investors. (Reporting by Krisztina Than; editing by Mark Heinrich)