June 25, 2014 / 4:25 PM / 3 years ago

CEE MARKETS 2-Forint, OTP shares ease on concern over new Hungary bank legislation

7 Min Read

(Recasts with Hungarian government decision, Polish confidence
vote)
    * Hungary's forint, OTP Bank shares ease on bill on fx loans
    * CEE stocks fall, tracking developed markets
    * Czech, Polish fx, bonds shrug off risk aversion
    * Polish PM seeks confidence vote, seen winning it

    By Sandor Peto
    BUDAPEST, June 25 (Reuters) - The forint and shares in
Hungary's biggest lender, OTP, extended losses on
Wednesday after the government announced a bill that will
increase costs for Hungary's banks.
    Poland's currency and government bonds firmed after Prime
Minister Donald Tusk announced a confidence vote, which he is
expected to win, to overcome a political crisis caused by leaked
recordings of private conversations between senior officials. 
    The Hungarian forint has been under pressure since
the central bank cut interest rates on Tuesday and signalled it
could further ease policy. 
    The currency fell again on Wednesday after the government
announced new legislation on banks, aiming to force them to
return to clients some of the money unlawfully charged on
foreign currency loans, following a recent court ruling.
 
    The legislation will go to parliament this week.
    Hundreds of thousands of Hungarians took out cheap foreign
currency loans, mainly in Swiss francs, before the 2008 global
crisis and have been hit as the forint has since weakened,
pushing repayment costs on those loans sharply higher.
    Further legislation, which may come later this year, could
also make banks compensate clients for interest rate hikes on
the loans. The total cost to banks could be up to 500 billion
forints ($2.22 billion), Concorde analyst Attila Gyurcsik said.
    The shares of OTP, Hungary's biggest commercial bank by
assets, fell 1.1 percent by late trade to 4,400 forints, while
Budapest's main share index dipped 0.4 percent.
    "The 200-day moving average of 4,320 forints could be the
next stop (for OTP shares). The technical picture is not too
bright, opening new buying positions is not recommended," Erste
Bank said in a note.
    
    RISK AVERSION HITS STOCKS
    Central European equities mostly fell as concerns about
violence in Iraq triggered capital flows globally from stocks
into safe-haven assets like German Bunds.
    Warsaw's main stock index dropped 1.4 percent.
    The zloty and Polish government bonds firmed, however, on
expectations Tusk will win the confidence vote, which he
initiated, as both his Civic Platform party and its junior
partner PSL continue to support the government. 
    Tusk called the vote after the leaked tape recordings of
officials embarrassed his government.
    The scandal pushed the zloty to three-week lows
against the euro last week but it has recovered and firmed by
0.1 percent against the euro on Wednesday to 4.15. 
    Poland's 10-year benchmark bond yield dropped 6
basis points to 3.41 percent. 
    The spreads of Hungarian bond yields over safe-haven German
Bunds widened by 2-7 basis points, while Polish and Czech
spreads were flat or even narrowed.
    Elsewhere, the Czech crown firmed 0.1 percent to
27.41 against the euro.
    The Czech central bank is expected to keep interest rates
unchanged near zero at a policy meeting on Thursday and maintain
its policy to keep the crown weaker than 27 to the euro.
 
    "The quarterly economic forecast which usually drives the
CNB (central bank) into a change of thinking will only be
finished ahead of the next meeting in August," said Komercni
Banka fixed income trader Dalimil Vyskovsky. 
    "Also, the economic figures lately point towards some
improvement in economic developments, despite CNB still pointing
to slight anti-inflationary pressures," he added. 
    
                      CEE MARKETS SNAPSHOT AT 1557 CET
 ************************** CURRENCIES ************************
                             Latest  Previous   Daily   Change
                             bid     close      change  in 2014
 Czech crown                 27.410    27.433  +0.08%  -0.28%
 Hungarian forint           306.830   305.770   -0.35%  -3.21%
 Polish zloty                 4.150     4.152   +0.05%  -0.01%
 Romanian leu                 4.390     4.388   -0.04%  +1.59%
 Croatian kuna                7.576     7.576    0.00% +0.55%
 Serbian dinar              115.380   115.400   +0.02%   -0.76%
 Note: daily change calculated from previous close at 1600 GMT
 **************************** STOCKS **************************
                             Latest  Previous   Daily   Change
                                     close      change  in 2014
 Prague                      1008.36    1017.59   -0.91% +2.17%
 Budapest                  18940.57  19018.85    -0.41%  +3.31%
 Warsaw                     2426.69   2459.77    -1.34% +0.93%
 Bucharest                  6790.09   6809.69   -0.29%  +4.82%
 ***************************** BONDS **************************
                         Yield    Yield    Spread    Daily
                         (bid)    change   vs Bund   change in
 Czech Republic                                      spread
   2-year                0.278    -0.054   +24bps     -5bps
   5-year                0.533     -0.059   +18bps      -2bps
  10-year                1.462    -0.048   +19bps     0bps
 Hungary
   3-year                3.190    +0.010   +312bps   +2bps
   5-year                3.480     -0.010   +313bps   +3bps
  10-year                4.460   +0.010    +319bps   +6bps
 Poland
   2-year                2.480    -0.020    +245bps    -2bps
   5-year                2.990    -0.040    +264bps    0bps
  10-year                3.410   -0.060    +214bps    -1bps
 ******************* FORWARD RATE AGREEMENTS ******************
                              3x6     6x9    9x12  3M interbank
 Czech Rep                    0.325   0.345  0.350   0.35
 Hungary                      2.335   2.370  2.420   2.34
 Poland                       2.490   2.370  2.360   2.68
 Note: FRA quotes are for ask prices
 **************************************************************
 
 (Reporting by Reuters buros; Editing by Susan Fenton)

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