* Hungary plans relief scheme for foreign currency mortgages
* Raiffeisen Hungary chief says no room for more losses
* Banker says uncertainty over shape of scheme
* Prime Minister accused banks of duping borrowers
* He says scheme will not wreck financial system
By Gergely Szakacs and Sandor Peto
BUDAPEST, July 26 Banks in Hungary cannot afford
to foot the bill for Prime Minister Viktor Orban's plan to help
borrowers struggling with foreign currency mortgages, a senior
banker said, breaking foreign lenders' silence on Orban's latest
Orban's government, seeking re-election next year, wants to
re-write the terms of home loans for hundreds of thousands of
borrowers who took on debt pegged to the Swiss franc or euro,
and then lost out when the exchange rate shifted.
On Friday Orban promised to negotiate over the new plan,
which he said would not be as radical as a 2011 repayment scheme
that cost the banks, who he accuses of duping consumers, over a
billion dollars between them.
But any measure is almost certain to cost the banks a lot,
and risks damaging already shaky business sentiment in Hungary
at a time when global investors are reviewing whether they
should keep their money in the riskier emerging markets.
In the first public comment on the government's plan by a
foreign bank executive, the Hungary chief of Raiffeisen
said lenders were already reeling from previous
government measures, and could not withstand more.
Heinz Wiedner, chief executive of the Austrian lender's
Hungarian business, told Reuters in an interview he was
encouraged by signals from Orban's government it was prepared to
hold talks with the banks, but he said there was still
uncertainty about what was being planned.
"There is ... no room on the banks' balance sheets any more
after all these additional burdens that we are already taking,"
Wiedner said. "Just look at the banks' profitability in the
sector, I mean clearly overall it is negative."
Banks in Hungary say the loan contracts were legal and they
gave consumers full information.
"Like the state, the banks also actually are at a critical
stage, and we are not able to suffer additional losses," Wiedner
said. "So whatever solution we come up with has to be a solution
which won't affect in any significant way either the state
budget or the banks' profitability."
He said he had no answers on what that solution will be. "It
will be a very difficult one to find even for the longer term a
real solution. All parties really have to stick their heads
together to see how it can be done."
Raiffeisen is in the top five of Hungarian banks. Other big
foreign banks whose Hungarian units may be hit by the mortgage
relief scheme are Austria's Erste, Germany's
Bayerische Landesbank and Italy's Intesa Sanpaolo
Orban, 50, has built his political reputation at home by
tangling with big institutions from the European Union to the
International Monetary Fund. His critics call his policies naked
populism, while he says he is defending Hungarian sovereignty.
Talking on public radio on Friday about consumers who took
out foreign currency mortgages, he said: "The conduct of banks
was careless at best, if not malicious. They tricked these
people and lured them into these financial products."
"This is a situation that makes human lives and the
Hungarian economy fragile. Therefore, we need to get rid of this
situation," Orban said. People with these mortgages will be an
important constituency in next year's election.
But Orban mixed his tough message with a more conciliatory
tone, that appeared designed to reassure jittery investors.
Lenders fear a repeat of the 2011 measure - known in Hungary
as the final repayment scheme - under which borrowers were
allowed to repay foreign currency loans in a lump sum at
artificially low exchange rates.
"When you want something against which there is enormous
resistance but it is important for the people, you do not need
negotiations, you need a Blitzkrieg," Orban said. "The final
repayment scheme was one such option."
"We are not aiming for such a solution but peaceful, calm
talks ... We are proposing a solution that does not wreck the
financial system but helps (borrowers) in trouble."
Lenders have a vested interest in opposing a scheme that
would cost them money. The net cost to banks of the 2011 scheme
was about 260 billion forints ($1.16 billion) and the burden of
any significant relief this time around is also likely to fall,
to a large extent, on the banks.
Mihaly Varga, the economy minister, told news portal
portfolio.hu that the state can only help "in limited terms"
because EU rules capped the budget deficit.
In the short-term, one of Hungary's biggest vulnerabilities
is that it has the highest sovereign debt in eastern Europe.
So far, the funds that hold the debt have kept faith because
the country, with its good rates or return on bonds, has
provided a welcome home for the "wall of money" created by the
U.S. Federal Reserve's quantitative easing.
Signals from the Fed that it will print less money have
reduced appetite for emerging markets, and could prompt some
investors in Hungary to review their position.