* Contracts can be modified retroactively by law - top court
* Modifications must maintain balance of interests
* Government says FX loans exploit Hungarians, eyes law
BUDAPEST, March 17 Hungary has the right to
modify the terms of foreign-currency loans, the country's
constitutional court ruled on Monday, the latest turn in an
ongoing legal battle over the troubled loans.
The court ruled contracts may be modified retroactively, an
interim phase in a long-running legal dispute over the loans. It
stopped short of declaring them unconstitutional, which analysts
said was a relief for Hungarian banks, who fear new government
measures could impose fresh losses on them.
The government had asked the court to consider whether some
conditions of foreign-currency loan contracts that are weighing
on Hungarian households might be unconstitutional and how
existing contracts could be modified through legislation.
Foreign-currency mortgages were popular in Hungary before
the 2008 global financial crisis. Since then, the forint has
weakened and loan payments soared, leading to widespread
"The lawmaker, just like courts, is entitled to modify
current and lasting contractual relationships if conditions that
set in after the contract is signed mean sustaining the contract
with an unchanged content hurts the substantial and justified
interest of one of the signatories," the court said.
It said lawmakers can intervene if changes in contract
conditions were "not rationally foreseeable" and many contracts
were involved. "Such contract modifications must strive for a
balance of interests within the altered conditions," the court
Prime Minister Viktor Orban's centre-right government, which
looks set to win elections on April 6, says foreign
currency-denominated loans exploit ordinary Hungarians. It wants
to implement a relief scheme, for which banks will probably have
to foot part of the bill. But it said it would wait for legal
issues to be ironed out before taking any new measures.
The next stage in the legal maneuvering is a final ruling
expected from the European Court of Justice in coming months.
Hungary's supreme court has already ruled on the main legal
issue, finding that lenders were not to blame when borrowers
lost out because the exchange rate changed.
That was a partial reprieve for banks, which are largely
foreign-owned. They include units of Belgium's KBC,
Austria's Raiffeisen Bank, Erste Bank and
Italy's Unicredit. Banks have already lost more than a
billion euros in a 2011 relief scheme.
Analysts say Hungary is vulnerable to a sell-off set off by
turbulence in emerging markets. A relief scheme that hurts banks
badly could add to investor concerns, they say.
The shares of OTP Bank, Hungary's largest lender,
rose 2.6 percent at 3,718 forints at 1032 GMT.
"This news that the government could touch loan contracts
retroactively in certain cases does not really say anything,"
said Akos Horvath, an analyst at brokerage Equilor.
"Specifically, the Court did not order any change (in the
(Reporting by Krisztina Than and Marton Dunai; Editing by Larry