July 28, 2014 / 6:32 AM / 3 years ago

REFILE-No bank failure risk from Hungary forex loans relief plan-minister

(Adds Hungary to headline)

BUDAPEST, July 28 (Reuters) - Hungary’s comprehensive relief plan for foreign currency borrowers poses no risk of toppling banks, Economy Minister Mihaly Varga was quoted as saying in an interview published on Monday.

Prime Minister Viktor Orban’s government has drafted legislation to help Hungarians struggling to manage foreign currency loans.

Once popular for their low interest rates, the loans turned sour when Hungary’s forint currency weakened.

The first step of the process will be to settle past fee and interest rate hikes on the loans.

The debt will then be converted into forints, possibly around the end of the year.

Hungary’s central bank has estimated the cost to banks from the first step at 700 billion to 900 billion forints ($3.05 billion to $3.93 billion), far exceeding the bill from a previous relief plan.

“Fears of any (bank) failures are unfounded,” minister Varga was quoted as saying in an interview with business daily Vilaggazdasag.

“In the course of discussions on foreign currency loans, the banks have signalled that, if needed, they will get capital from their parent banks. Or if not, they will settle the bill themselves.”

Banks in Hungary include units of Belgium’s KBC, Austria’s Raiffeisen Bank and Erste Bank, Italy’s UniCredit and Intesa Sanpaolo, and MKB Bank.

Varga said banks met capital adequacy requirements and foreign owners have affirmed their commitment to Hungary.

German state-backed lender BayernLB recently sold its Hungarian MKB unit to the Hungarian government.

Varga said at this stage there was no room for any big cuts in special taxes levied on some business sectors but added that Hungary might over time consider reviewing these, including a hefty bank levy, if economic growth accelerates.

($1 = 229.26 Hungarian forints)

Reporting by Gergely Szakacs; editing by Jason Neely

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