VIENNA, Sept 12 (Reuters) - Austrian officials reacted angrily on Monday to proposals by Hungary to let households repay foreign currency loans in one go at low fixed exchange rates and said the European Commission was trying to convince Budapest to abandon the plan.
Hungarian Prime Minister Viktor Orban deemed the plan to allow Hungarians to repay Swiss franc and euro loans at a discount to market levels "feasible", and warned against forcing banks to issue new forint loans or mandatory debt conversion.
But officials said the steps could cost Austrian lenders dear.
Austrian banks including UniCredit Bank Austria , Erste Group Bank and Raiffeisen Bank International are among the leading lenders in the European Union's emerging eastern wing, and they depend on the region as a main source of growth.
They have roughly 6 billion euros ($8.23 billion) worth of foreign-currency loans outstanding in Hungary, officials said. The banks declined to comment on the issue, on which officials said they were seeking more details.
But an Austrian official who asked not to be named said the European Commission was intervening.
"Already over the weekend there have been several attempts to get an idea what (Orban) is planning exactly and to convince him to back down because it could have a major impact on banks and it is not in line with the legislation in the European Union," the official said.
"It is a complete failure to comply with the rules within the Union."
The Austrian central bank and market regulator FMA have long warned that foreign-currency credit -- often loans taken out years ago by retail borrowers using Swiss franc loans as a way to cut interest costs -- posed risks to the system.
The franc's surge as a safe-haven asset, a rise checked somewhat by aggressive action this month from the Swiss National Bank , means those risks are now coming through.
"We have been saying that this is a very serious risk to our banks, actually more than the liquidity and sovereign risk that most of the banking sector is groaning under, but ... not realising how soon it would materialise," one supervisor said.
Bank shares were among the top decliners in Vienna, with Erste stock down 5 percent and Raiffeisen off 4.2 percent by 1515 GMT, lagging a 3.8 percent decline in the blue-chip index.
One official cited rough estimates that the plan could deliver a combined 2.5 billion euro hit to profits at all banks operating in Hungary.
Hundreds of thousands of Hungarian households have Swiss franc loans equivalent to some 18 percent of the country's GDP. Under the proposals put forward by Orban's Fidesz party, those that could afford it would be able to make a one-off repayment of their loans at an exchange rate of 180 forints per Swiss franc or 250 forints per euro.
Calling the plan unacceptable, Austrian Foreign Minister Michael Spindelegger said Vienna could take the case to the European Court of Justice if Budapest did not change tack.
The Austria Press Agency (APA) quoted him as saying in Brussels that Hungary's proposal "violates what we have built up in the EU. Private contracts have to be respected."
APA said Austrian Finance Minister Maria Fekter had also written a letter of protest to Budapest.
"We decisively reject the planned measures because they represent a break from legal assurances as never before seen in an EU member country," it quoted the letter as saying.
Bank Swiss franc loans in Hungary (bln eur) Bank Austria 0.8 Erste Group 3 Raiffeisen Bank Int'l 1.6 ($1 = 0.729 Euros) (Reporting by Michael Shields and Angelika Gruber; Editing by Catherine Evans)