* PM Orban: fixed FX repayment scheme "feasible"
* Govt plans benchmark interest rate for FX loans
* Trade in OTP, FHB suspended, forint slightly stronger
* Hungarian banks say fixed FX rates "unacceptable"
* Hungary 5-yr CDS retreats from 2-1/2-year highs
(Releads, adds reaction from Austria, Hungarian banks)
By Gergely Szakacs and Michael Shields
BUDAPEST/VIENNA, Sept 12 Hungary's prime
minister on Monday gave a conditional green light to a plan
enabling families to repay foreign currency loans at a big
discount to market levels, sparking outrage from neigbouring
Austria, home to some of emerging Europe's top lenders.
Orban's remarks helped allay the worst market fears
triggered by a Friday proposal of the ruling centre-right Fidesz
party, which implied banks might be forced into issuing new
forint loans for all borrowers wishing to repay their expensive
Analysts estimated full conversion of the total outstanding
stock of Swiss franc loans -- which proliferated in the central
European country of 10 million before the 2008 financial crisis
-- could have caused bank losses of up to 1.1 trillion forints
The current proposal would enable borrowers with sufficient
savings to repay their foreign currency mortgages in full at 180
forints per Swiss franc and 250 forints per euro, far below
current market exchange rates.
For a factbox, see
"We propose that on top of the proposal by Fidesz-Christian
Democrat (parliamentary group), (lawmakers) should not present
any further motions burdening the banking system with regard to
the final repayment (of loans)," Orban told parliament.
"This means that apart from the final repayment, they should
not prescribe mandatory (loan) conversion into forints or
mandatory forint loan issuance, because this will commence
anyway," he said.
With these caveats, Orban dubbed the new scheme offered to
hundreds of thousands of households holding Swiss franc debt
equivalent to 18 percent of Hungary's gross domestic product
"feasible", adding that parliament would have the final say.
It was not immediately clear when parliament would vote on
the new programme.
The plan is a further blow to banks active in Hungary, which
have already been slapped with Europe's highest financial sector
tax, and triggered an angry response from Austria, whose banks
are among the leading lenders in the EU's emerging eastern wing.
Lenders including UniCredit Bank Austria , Erste
Group Bank and Raiffeisen Bank International
have roughly 6 billion euros ($8.23 billion) worth of
foreign-currency loans outstanding in Hungary, Austrian
The banks declined to comment, while officials said they
were seeking more details on the proposal.
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
It was not clear how many households would join the scheme
as few families are likely to have the required amount of cash
to settle their outstanding debt in one go.
The plan, which Hungary's central bank has said threatens
financial stability, is the latest in a run of unorthodox steps
by the government, including a $15 billion pension grab and
windfall taxes on banks and other sectors to plug budget holes.
Orban said the government had considered the plan's
potential impacts and found that foreign-owned banks active in
Hungary were backed by their parents, while Hungary's OTP
and rival FHB had access to state backing,
"We have found that regardless of this decision, banks
continuously reduce their lending in Hungary, they continuously
withdraw their profits and funds from Hungary in huge amounts,"
The Hungarian Banking Association said the option to offer
final repayment at fixed exchange rates was "unacceptable" and
the plan entailed significant financial, macroeconomic and
economic growth risks.
Gergely Suppan, an analyst at Takarekbank, estimated total
banking system losses at well over 100 billion forints.
OTP and FHB, which sold off sharply on Friday when first
details of the new plan emerged, were suspended on the Budapest
Stock Exchange on Monday at their own request pending Orban's
announcement, but the suspension has been lifted and trading
will resume on Tuesday.
Orban said the government proposed to launch
benchmark-linked interest rates on foreign currency loans to
make their pricing more transparent, and said that banks' costs
based in forints should be charged in forints only.
He said Hungary should brace for an international onslaught
as a result of the plan, as after it launched Europe's highest
financial sector tax, but this should not deter lawmakers.
"All I can say is that in case of unfavourable decisions we
will take the appropriate counter-measures," Orban said.
The forint , which sank to a nine-month low on
Friday, recovered slightly after Orban's remarks, trading at
281.95 versus the euro at 1442 GMT, off session lows at 284.30
The cost of insuring Hungary's debt against default
hovered about 450 basis points on a five-year
horizon on Monday, off 2-1/2-year highs hit before Orban's
One analyst said the plan, even in its tempered-down form,
would continue to weigh on lending and dent economic growth,
already seen at a meagre 2 percent this year and next, well
below earlier government hopes of around 3 percent.
"The further sacrifices requested from the banking sector
are significant but the most hair-raising element (the mandatory
provision of HUF loans) was not included," said analyst Gyorgy
Barta at CIB. For more comments, see
"Therefore sector stability may be harmed to a smaller
extent than initially thought. Still, the possibility of full
repayment without penalty could be a heavy blow to all players."
($1 = 207.337 Hungarian Forints)
(Additional reporting by Michael Shields and Angelika Gruber in
Vienna; Editing by Catherine Evans)