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UPDATE 2-European court says Hungary can amend terms of foreign currency loans
April 30, 2014 / 10:12 AM / 3 years ago

UPDATE 2-European court says Hungary can amend terms of foreign currency loans

* Ruling on exchange rate spread applied in FX loans

* Hungarian court could make own decision later in year

* Government planning to phase out FX mortgages (Adds Kuria statement about timing of decisions)

BUDAPEST, April 30 (Reuters) - Hungary’s top national court said on Wednesday it may rule before its summer break in a landmark case that could help define how the government solves the stubborn problem of foreign-currency loans.

In a case dealing with those loans, the European Court of Justice ruled earlier on Wednesday that Hungary can amend the terms of a contract for a foreign currency loan if it is deemed unfair. That referred the case back to the top court in Hungary, called the Kuria.

Foreign currency loans, mainly in the safe-haven Swiss franc, were popular in Hungary before the 2008 financial crisis for the low interest rates they offered. They turned sour as the Hungarian forint weakened, making the loans much more expensive to repay. Many borrowers were pushed into default.

Hungarian borrowers sued OTP Bank, complaining that they got a Swiss franc loan at the bank’s buying exchange rate, but had to pay instalments and other costs at the selling rate.

The Kuria had sought guidance in relation to the lawsuit about the fairness of the so-called exchange rate spread in such loans - the difference between the rate at which the loan was disbursed and at which instalments and costs are paid.

Kuria press officials told national news agency MTI that the court could make a ruling of its own in the case before its summer recess, which starts on July 15.

In a subsequent final ruling, most likely after the recess ends on Aug. 20, the Kuria will amend a broad-based legal opinion that it formed about the issue last year, it said.

Prime Minister Viktor Orban’s government, which is planning a new relief scheme for forex borrowers, has said that it would wait for that final ruling before it decides how to phase out billions of euros worth of such mortgages.

The European Court of Justice also said it was up to the Hungarian court to determine whether the terms of the total cost of the foreign currency loans were clear enough to borrowers.

The Hungarian 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. But it referred certain issues to the European court.

At 1001 GMT, the forint traded at 307.59 per euro, slightly stronger than morning levels. Shares in OTP Bank, central Europe’s largest independent lender, were down 1 percent, off session lows hit earlier.

“My feeling is that the ball is back in Hungary’s court, the big questions have yet to be decided, so uncertainty will persist,” analyst Gergely Szabo Forian at Pioneer Investments, said.

Hungarian banks 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 previous, 2011 relief scheme. (Reporting by the Budapest bureau. Editing by Larry King)

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