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4 years ago
UPDATE 1-Hungary tells banks time limited for talks on FX loan conversions
August 1, 2013 / 9:43 AM / 4 years ago

UPDATE 1-Hungary tells banks time limited for talks on FX loan conversions

(Adds details, comments from minister)

* Economy minister says needs plan on mortgage loan conversions by autumn

* Says will press ahead alone if banks don't agree deal by then

* Thousands of mortgage holders hold debt pegged to Swiss franc or euro

* Have been hit hard since 2008 crisis by falling value of forint

By Krisztina Than

BUDAPEST, Aug 1 (Reuters) - Hungary will negotiate with banks on how to convert financially stretched householders' foreign currency mortgages into forints, but a plan needs to be in place by autumn, Economy Minister Mihaly Varga said on Thursday.

Hundreds of thousands of Hungarian borrowers took on billions of dollars of housing debt pegged to the Swiss franc or euro, mostly prior to the 2008 economic crisis, and lost out heavily when the exchange rate shifted against the local currency.

Prime Minister Viktor Orban's government, seeking re-election next year, has said it wants to ease their burden, spooking banks, which stand to lose money on any conversion, and markets at a time when global investors are reviewing whether they should pull out of riskier emerging markets.

In his most detailed comments yet on the issue, Varga told MR1 radio the conclusion of talks he held with the Bank Association and civil groups in past days was that foreign currency mortgages were a "bad product" and had to be phased out as quickly as possible.

"We will likely need to apply a solution that converts these loans into forints in some way," Varga said, speaking of "somehow fix(ing) the exchange rate level ...and the interest rate level."

He neither mentioned a conversion rate nor specified whether the whole stock of such loans or just ongoing repayments would be converted into forints - making it close to impossible to assess the likely impact on the banks.

Last week Orban promised to negotiate with banks over the new plan, which he said would not be as radical as a 2011 repayment scheme that cost the country's mostly foreign-owned lenders over a billion euros in losses.

Varga said talks with the banks would continue in coming weeks but a solution would have to be found by early September, as the government needed to submit the 2014 draft budget to parliament by the end of that month.

"We can negotiate ...But by the autumn the latest we need to have a proposal ready, because if there is no such proposal then the government will make decisions on its own."

Varga said the government primarily wanted to help families who took out foreign currency mortgages to buy a home, and not those with equity-type free-use mortgages.

That means the measure could affect around 226,000 loan contracts or 1.824 trillion forints ($8.07 billion) worth of loans, according to June central bank data.

Varga signalled the government's fiscal room for manoeuvre was small.

"I have to represent the state, including those people who did not take out any loans or took out loans in forints ... and are now looking at what kind of relief schemes the state participates using with taxpayers' money," Varga said.

Big foreign banks whose Hungarian units may be hit by the mortgage relief scheme include Austria's Raiffeisen and Erste, Germany's Bayerische Landesbank and Italy's Intesa Sanpaolo.

$1 = 225.8915 Hungarian forints Reporting by Krisztina Than; Editing by John Stonestreet

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