* EU court issues preliminary opinion on foreign currency
* Government does not like the forex loans, plans relief
* Foreign-owned banks expect they will have to foot the bill
* Bank stocks fall slightly, but losses contained
BUDAPEST, Feb 12 The European Court of Justice
issued a legal opinion on Wednesday which could clear the way
for Hungarian courts to rule on whether some aspects of the
foreign currency loans that banks issued were in breach of the
Hungary's government says the loans exploit ordinary
Hungarians, and wants to implement a relief scheme, for which
the banks would probably have to foot the bill. It is waiting
for legal issues to be ironed out before moving ahead.
Bank stocks fell after the European Court opinion was
announced, but the losses were limited because the market
expects that any decisions that could substantially hurt the
banks' bottom line will come later.
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 the banking sector, which is
largely foreign-owned and includes the units of lenders such as
Raiffeisen, Erste Bank and Unicredit
The European court was asked to rule on a secondary issue,
which relates to whether a bank treated a customer unfairly by
issuing a mortgage at one exchange rate, and setting a different
one for the repayments.
The opinion of the EU court issued on Wednesday is not
binding until the judges themselves have ruled. It stated that
under European laws Hungary's national courts can intervene
where contract terms are deemed to be unfair.
Analysts say that Hungary is vulnerable to a potential
sell-off by investors worried about turbulence in emerging
markets, and they say a mortgage relief scheme that hurts the
banks badly could add to investor concerns.
The shares of OTP Bank, Hungary's largest lender,
were down 1.7 percent at 4,190 forints at 1035 GMT.
Analysts said the losses were contained as it would take
months for the EU court to make its definitive ruling, and then
for a Hungarian court to decide on the issue.
"There was a little panic but then OTP started to recover,"
Equilor analyst Akos Kuti said.
Prime Minister Viktor Orban, who opinion polls show will be
reelected for a new four-year term in April, has said the
government is determined to provide help to struggling holders
of foreign currency mortgages.
Hundreds of thousands of Hungarians took out mortgages
denominated in euros or Swiss francs because they were the
cheapest option available at the time, and then saw their debt
balloon when the Hungarian forint fell in value.
The banks are already reeling from a previous,
government-imposed scheme that cost banks over 1 billion euros
The next stage in the complex legal maneuvering around the
foreign currency loans is a ruling expected from the Hungarian
supreme court, known as the Kuria, on a separate set of
These are the fairness of the mortgage contracts and the
issue of whether the banks were sufficiently transparent about
unilateral changes to the loans' terms, such as the interest
That decision, and separate guidance expected from the
Constitutional Court, could serve as basis for further
government measures to help borrowers.
For markets, the ruling on interest rates "is the story,"
said Norbert Harcsa, an analyst at brokerage Ipopema.