* Hungary govt wants to slash number of FX loan holders by
* If repayment scheme not enough, more steps by Dec - Fidesz
* New measures could be more drastic, negative for banks
* Cutting FX debt could free up spending power, reduce
By Krisztina Than and Michael Shields
BUDAPEST/VIENNA, Oct 21 While euro zone leaders
plan to use taxpayers' money to shore up their banks, Hungary's
prime minister is in a "fight" against the nation's lenders and
is piling pressure on them as he tries to jump-start consumer
And, for the banks at least, it may be about to get worse.
Viktor Orban has already slapped them with an extraordinary
tariff to offset personal income tax cuts and launched a
campaign to cut a huge level of foreign currency debt that is
expected to cause big losses for financial institutions.
That plan aims to convert foreign currency mortgages --
which are worth 20 percent of gross domestic product -- into
forint debt to relieve pressure on households whose payments
have sky-rocketed due to the Swiss franc's surge .
Banks have been reluctant to help clients refinance their
foreign currency mortgages from forint loans and are using
various strategies to minimise their losses stemming from the
repayments. They are also seeking ways to appeal the legislation
That has angered Orban's ruling Fidesz party, which said new
measures could come by December, and Orban flagged new
"uncharted" ways to break out of the foreign currency debt trap
"Banks will have to warm up to this thought, and if the law
on repayments that has been passed is not enough, then further
measures will come by December," Fidesz parliamentary group
leader Janos Lazar told TV2 earlier this week.
"We are unshakeable in this, that we will go down this road,
and the parliamentary group will give all its support to the
Hungary's exchange rate exposure makes the country highly
vulnerable and makes it hard for the central bank to cut
interest rates, as that would weaken the forint .
Despite tax cuts, people are not spending, but are repaying
loans instead, and the economy is facing the risk of stagnation
Cutting households' foreign currency debt would remove a
huge exchange rate risk from the economy and would thus increase
the government's room in economic policy.
BANKS UNDER PRESSURE
Helping mortgage holders may also pay off politically as
parliament prepares to pass a 2012 austerity budget. A fresh
poll has shown Fidesz' public support has fallen to 20 percent
from about 40 percent when it swept elections last year.
The government has not given any hint on what further
measures it might use to boost borrower participation in the
relief scheme, but Orban said foreign exchange loan holders will
get "every help" possible to switch into forints.
Borrowers who have enough cash can easily repay their
mortgages now but a majority who need a forint refinancing loan
face hurdles -- from high interest rates to lengthy procedures.
They are asking for help. One group has joined forces to
create a facebook page and says they can negotiate better
conditions for their combined foreign currency mortgages of more
than 100 billion forints ($459 mln).
"We badly need a solution as we are only running into walls
and we will not be able to pay our loans for much longer... This
situation is miserable," one of them, Emoke Huber
wrote in a comment.
Lazar said new measures should cut the number of foreign
currency debt holders "radically" by the first half of 2012.
"The task facing the Hungarian economy will be entirely
different if 10 percent (of FX loan holders) take advantage of
it (repayment) than if 60 percent do," Orban has said.
Analysts said possible further measures brewing up may
include making forint refinancing loans mandatory or capping
interest rates, and one analyst even mentioned a forced
conversion of foreign currency loans into forint-based loans.
Orban said local governments indebted in Swiss francs should
also get help to get out of the debt trap.
"The prime minister also mentioned the loans of the local
government sector. What kind of a loss sharing could there be?
Obviously, they will probably push the losses on the financial
sector just like with the repayment scheme," said Matyas Kovacs,
an analyst at Raiffeisen.
Austria's Erste Bank, emerging Europe's second-biggest
lender, has announced it will lose up to 800 million euros and
not pay a dividend, partially due to a hit it has taken on
Hungarian foreign currency loans. Competitor Raiffeisen has said
its Hungarian unit could face 120 million euros in losses.
That aside, lenders in Hungary have little exposure to
peripheral euro zone debt and the sector's capital adequacy was
14 percent at the end of the first half, well over an 8 percent
minimum, although that figure masks growing disparities.
The relative health of the bank sector and help from the
central bank, which stepped in to temper market volatility with
euro sales to banks from its foreign currency reserves, may
embolden the government to go a few steps further.
"Given how the government has acted so far what we can say
is that the biggest group to tackle and the ones with the most
political payoff will be (people) who could not afford to repay
(loans) early," said Peter Attard Montalto at Nomura in London.
"This larger group will however require more drastic,
bank-negative policies... than what we have seen so far."
A poll by think tank Szazadveg showed on Wednesday that 15
percent of foreign currency loan holders said they wished to
take part in the repayment scheme and 25 percent were undecided.
Banks are building defences against expected losses.
Erste said it will inject about 600 million euros
into its Hungarian daughter. Raiffeisen also plans to
inject capital into its Hungarian unit, its CFO said.
OTP declined to give information on forint loans
it is offering to clients who want to repay their mortgages.
UniCredit said it was not yet offering loans
specifically aimed at forex mortgage refinancing.
The deadline for handing in applications is end-December,
and if the results do not meet Orban's satisfaction, new
measures could follow. If the scheme does not clear the court
hurdle, the government could be stuck with billions of forints
in damage payments. But Orban has vowed to push on.
"We (will) continue the fight against the banks until we
win," he told tabloid Blikk last month.
($1 = 217.462 Hungarian Forints)