May 8, 2013 / 1:11 PM / 6 years ago

Hungary should clean up bad debts with personal insolvency plan

BUDAPEST, May 8 (Reuters) - Hungary should bring in personal insolvency legislation to help to deal with bad debts left over from the country’s property boom, a senior official from Hungary’s central bank said on Wednesday.

“For non-performing (loans) at the moment there is no efficient programme in place,” Marton Nagy, managing director at the National Bank of Hungary, said at a business conference. He said there was no mechanism currently to deal with borrowers’ entire debt.

Hundreds of thousands of families in the country have big debts in Swiss francs after taking out loans and mortgages in the Swiss currency before the financial crisis when the forint was much stronger.

There have been some debt relief programmes to try to tackle the problem but a high level of bad debts persists.

Nagy said the rate of non-performing loans could peak at around 16-17 percent this year, depending on how many foreign currency debtors entered an existing debt relief scheme.

Personal insolvency legislation would particularly help those unable to make any payments on their debts.

Nagy said a personal insolvency programme should be worked out with great care. He also said that at the moment there was resistance from the banks.

He said the plan must not pose a threat to mortgage lending as that could undermine economic growth, but it would mean debtors could start “with a clean slate” after 4-5 years.

“Let me cite just one example: Ireland introduced personal insolvency during the crisis,” he said.

In its latest annual report on Hungary, the International Monetary Fund also said a personal insolvency framework would help banks accelerate a clean-up of their portfolios.

Nagy was one of the masterminds behind the central bank’s new lending programme launched last month to help small and medium-sized businesses get access to cheap credit.

Gabor Orban, a state secretary of the Economy Ministry, told the same conference that the ministry was in talks with banks about several issues, including a potential personal insolvency programme but it was unlikely to be launched this year.

He also said the ministry was studying the Irish programme.

“There are many conditions for personal insolvency to be able to work and one ... condition is that there should be sufficient time to prepare for it,” Orban said. (Reporting by Krisztina Than. Editing by Jane Merriman)

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