* ECB adopts legal opinion on Hungarian loans legislation
* Says retroactive effect not in line with relevant EU rule
* Warns of risks from new measures, planned fx loans
(Adds more comments from ECB, background)
BUDAPEST, Aug 6 Hungary's plans to force banks
to refund borrowers for overcharging could hurt financial
stability and the authorities should consider the effects
carefully when drawing up further measures, the European Central
The central bank, in a legal opinion signed by President
Mario Draghi, also said the retroactive effect of the Hungarian
legislation did not seem to be in line with the relevant EU
A Hungarian court ruled in June that banks had previously
overcharged customers for some loans and a law drafted by Prime
Minister Viktor Orban's government and passed last month will
force banks to repay customers for unfair charges and interest
rate hikes on loans. That is likely to result in big losses for
Hungary's mostly foreign-owned banks.
The National Bank of Hungary has estimated that the
compensation could cost the banking sector about 900 billion
Hungarian forint ($3.82 billion). The main foreign banks include
Austria's Erste and Raiffeisen, Italy's
Intesa and Belgium's KBC.
The ECB, in its legal opinion dated July 28 but published on
its website late on Tuesday, said the potentially significant
costs of the new measures "may in some cases require material
capital injections from the owners of the financial
"The ECB suggests that the Hungarian authorities carry out a
thorough analysis of the possible effects of the measures having
retroactive effect, as such measures could put a significant
strain on the banking sector, potentially adversely affecting
the stability of the Hungarian financial sector as a whole," it
Parliament's approval of the bill in July is the first
legislative step of a relief scheme for borrowers, which will
later include a conversion of all foreign currency loans into
forints, the government has said.
These loans, mostly taken up in Swiss francs, were once
popular for their low interest rates but many borrowers were
caught out during the global financial crisis when the forint
weakened, pushing their repayment costs much higher. Orban now
wants to resolve the problem for good.
The government has said that the next batch of legislation,
which will lay out how banks will have to settle the refunds
with borrowers, will be submitted parliament in the autumn.
The ECB said that this settlement process and the planned
conversion of forex loans into forints could pose risks and
Budapest should take these into account.
"In particular, further measures to be applied to the
planned conversion of FX loans should also take into account the
need to preserve financial stability, ensure an appropriate
burden sharing among all stakeholders and avoid moral hazard in
the future," the ECB said.
Depending on the nature of further measures on the repayment
or write-down of funds to be repaid to customers, "cross-border
spillover effects on banking groups' consolidated profits and
capital positions may occur."
"In addition to the possible significant adverse financial
impact on the banking system, the possibility of negative
effects on the Hungarian economy and financial markets cannot be
excluded," the ECB said.
(1 US dollar = 235.8000 Hungarian forint)
(Reporting by Krisztina Than and Sandor Peto; Editing by Susan