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UPDATE 1-Hungary govt seeks final FX mortgage solution -paper
March 6, 2013 / 12:01 PM / in 5 years

UPDATE 1-Hungary govt seeks final FX mortgage solution -paper

* Govt seeks final solution of households’ fx debt problem-paper

* New head Matolcsy could seek help from Swiss cbank-paper

* SNB says has not been contacted by Budapest

* Govt wants conversion of fx loans into forint-another newspaper (Adds SNB comment, more details, analyst)

BUDAPEST, March 6 (Reuters) - Hungary’s government is seeking a definitive solution to the country’s problems with the mass of home loans denominated in Swiss francs, the daily Magyar Nemzet wrote on Wednesday, citing unnamed sources.

Financial markets are watching closely for any sign of major policy action from new Governor Gyorgy Matolcsy, appointed to head the bank last week after two years in charge of one of Europe’s most radical economic policy drives.

The paper, which is close to the ruling Fidesz party, wrote in a front page article that the government was mulling the conversion of Swiss franc-denominated household mortgages into forints or possibly euros.

The plan was one of several solutions under consideration, the newspaper said, adding that it would have to involve cooperation between Matolcsy and Swiss National Bank Chairman Thomas Jordan.

SNB spokesman Walter Meier said the bank had not been contacted by the National Bank of Hungary about this topic.

Another newspaper Nepszabadsag said on Wednesday, also citing unnamed sources, that the government was planning a solution to help those debt holders who are more than 90 days behind with their payments.

It said the government, with the involvement of banks would help these loan holders by converting their loans into forints.

Hungarian households and businesses have suffered for years from ballooning debt service costs on loans denominated in Swiss francs as the forint weakened against a booming franc, eroding domestic consumption and hurting banks’ loan books.

Prime Minister Viktor Orban - who faces elections next year - has said repeatedly in recent days that foreign currency debts were a key problem his cabinet sought to ease. His new Economy Minister Mihaly Varga has echoed that remark several times.

Governor Matolcsy told a parliament hearing last week that he “really did not like” foreign currency loans.

A reduction in the foreign currency loan stock would reduce Hungary’s exposure and vulnerability but markets will need more clarity on exctly what the government and Matolcsy plan.

In a previous scheme drafted by the government, households had the opportunity to repay their foreign currency mortgages early at well below market exchange rates, which caused hundreds of billions of forints in losses for commercial banks. Then the National Bank of Hungary provided foreign currency funding from the reserves to allow banks to make the repayments.

“Arguably, the main risk is that with Governor Matolcsy now in charge of the FX reserves and the 2014 elections are approaching, the current conversion programme could be more significant in size than the previous one, draining reserves too fast,” said Gabor Ambrus at 4CAST in London.

In another scheme still in effect, indebted households can pay their monthly instalments at a more favourable exchange rate and pay the difference only years later. (Reporting by Marton Dunai, additional reporting by Caroline Copley in Zurich; editing by Patrick Graham)

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