BUDAPEST, June 23 A Hungarian court ruling on foreign currency mortgages is negative for Hungary's banks because they may have to pay some 1 billion euros ($1.36 billion) to their clients as compensation, rating agency Moody's said in a weekly note on Monday.
Banks in Hungary have overcharged borrowers to some extent for foreign currency loans, the Supreme Court ruled last Monday, paving the way for new government measures that could inflict losses on the bank sector.
"The court ruling is credit negative for Hungarian banks because it increases the possibility that banks will have to make compensation payments to mortgage borrowers of around 1 billion euros, or about 11 percent of the banking system's total capital, according to our initial estimates," Moody's said.
Moody's added that although a solution to the problem of forex mortgages would impose considerable costs on banks, it would also reduce the risks of punitive measures by the government, and help constrain the rise in nonperforming loans.
($1 = 0.7366 Euros) (Reporting by Krisztina Than, editing by Louise Heavens)