September 5, 2013 / 12:46 PM / 4 years ago

UPDATE 1-Hungary ruling party gives ultimatum to banks on fx loans

* Banks must correct mistakes of forex mortgages by Nov

* If they fail to do so, govt will step in to phase out forex loans

* Energy prices for households to be cut by 11.1 pct in autumn

* PM Orban’s Fidesz ahead in polls, elections due in 2014 (Adds more comment, background)

By Krisztina Than and Sandor Peto

VISEGRAD, Hungary, Sept 5 (Reuters) - Hungary’s ruling party gave an ultimatum to banks on Thursday to cut the burden of foreign currency mortgage holders by November and said if they fail to do so, the government will step in with a plan to get rid of the loans.

Prime Minister Viktor Orban and his Fidesz party, gearing up for elections in 2014, want to see a drop in the burden of borrowers holding mortgages in mostly Swiss francs and euros. After talks between the government and banks for weeks, Fidesz lawmakers piled pressure on banks to act.

Banks, which submitted their own proposals to the economy ministry last week, feared a new relief scheme could inflict losses on them after years of windfall taxes and a drastic earlier repayment scheme which caused them big losses.

Antal Rogan, the head of Fidesz’ parliamentary group, said banks must repair the mistakes of foreign currency mortgages, most of which were taken out prior to the 2008 financial crisis, and have become a pain for households after repayments surged.

Rogan said banks had a moral responsibility for the foreign currency loan problem and they should modify loan contracts in favour of borrowers. The deadline is Nov. 1.

“For one-and-a-half months banks have the possibility to resolve this problem as they also have the moral obligation (to do so),” Rogan told a news conference after a party meeting.

“We expect banks to modify the contracts...if this does not happen then the state will step in, and will work out its own proposal which parliament will approve before the end of the year. And the direction of this is fairly obvious.”

“We will set the goal of phasing out foreign currency mortgages ... and practically implement a conversion of these (loans) into forints,” Rogan said.

He said borrowers should be given justice with banks bearing the burden of the measure, but also said that those who got indebted in foreign currency cannot be better off after the scheme than those who took out forint loans.

Big foreign banks whose Hungarian units may be hit by the mortgage relief scheme include Austria’s Raiffeisen and Erste, Germany’s Bayerische Landesbank and Italy’s Intesa Sanpaolo.

The ruling party lawmakers also decided on further energy price cuts for households, which could win votes for Fidesz in elections due in April or May next year.

Rogan said electricity, gas and district heating prices will be cut by 11.1 percent this autumn. This comes on top of an earlier price cut, and the new measure should bring prices down by 20 percent compared to December last year, he said.

Lawmakers also approved a plan to extend tax allowances to families with lower incomes. The new measures come on top of an increase in teachers’ wages made earlier this year.

Orban’s Fidesz party maintained a double-digit lead ahead of the main opposition Socialists in August according to a survey by pollster Ipsos but almost half of voters are undecided. (Reporting by Krisztina Than/Sandor Peto; editing by Ron Askew)

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