Hungary's competition watchdog fines banks for cartel

BUDAPEST (Reuters) - Hungary’s competition watchdog has fined a group of banks 9.5 billion forints ($43.3 million), saying they had operated a cartel during a state-imposed scheme two years ago designed to help holders of disastrous foreign-currency mortgages.

People withdraw money from an ATM at a branch of Hungary's largest lender OTP Bank in central Budapest July 24, 2013. REUTERS/Laszlo Balogh

Many people swapped their costly foreign-currency debt for new forint loans under the scheme, one of the most controversial measures by Prime Minister Viktor Orban’s government, which inflicted huge losses on the country’s mostly foreign-owned commercial banks.

However, the GVH watchdog said the 11 banks in question had illegally colluded to restrict the availability of refinancing loans to reduce the scale of mortgage repayments under the scheme.

Hundreds of thousands of borrowers had taken on mortgages pegged to the Swiss franc or euro before the 2008 financial crisis only to lose out in subsequent exchange rate moves.

Orban’s government gave borrowers the option, known as the final repayment scheme, to repay foreign-currency loans in a lump sum at artificially low exchange rates in a period spanning several months in late 2011 and early 2012.

The measure forced banks into absorbing losses of more than 1 billion euros.

The GVH said it considered the banks’ losses as a “mitigating circumstance”, but the fact that the banks involved had a market share of more than 90 percent was an aggravating condition. It said the behavior of banks significantly reduced competition.

The banks that received the biggest penalties were Hungary's OTP OTPB.BU, which was fined 3.9 billion forints, and Austria-based Erste ERST.VI, which was fined 1.7 billion forints.

Other banks fined include the Hungarian units of Raiffeisen RBIV.VI, UniCredit CRDI.MI, Intesa Sanpaolo ISP.MI, MKB Bank BLGGM.UL and KBC's KBC.BR Hungarian unit.

OTP said in a statement that the fine was unjustified and it would seek legal redress. Erste’s Hungarian arm denied any wrongdoing and said it would decide later whether to appeal against the fine.

A spokesperson for Intesa Sanpaolo unit CIB Bank said that the bank deemed the resolution of the Hungarian competition authority unfounded and planned to appeal.

UniCredit unit Bank Austria denied the allegations and said it would pay the fine while deciding whether to appeal. MKB said it would mount a legal challenge the decision, which it considers “entirely baseless”.

($1 = 219.57 Hungarian forints)

Additional reporting from Francesca Landini in Milan,; Editing by David Holmes, David Goodman and Ken Wills