Creditors of over 95% of all household loans decided to sue the State of Hungary

HUNGARY - In Brief 26 Aug 2014 by Istvan Racz

Fact: 79 out of the existing total of 400 domestic creditors are now suing the State of Hungary, fighting the assumption laid down in a special parliamentary act approved in July 2014 that all their previous unilateral amendments of loan contracts vis-a-vis households were unfair and thus illegal. However, all the big creditors turned to court (even MKB, which has been recently acquired by the government, is now suing its owner, the Hungarian State), and so the financial institutions which initiated a court procedure represent the creditors of over 95% of all household loans. Creditors had 25 August as the final deadline to start lawsuits on this issue.

Significance: For the governing Fidesz party, the case they are pushing against banks and other creditors is the main campaign issue, by which they hope to win the local election on 12 October - with a great chance of success. For banks, it is a fight for HUF800bn or 29% of their total capital base, which they are expected to pay to their borrowers in compensation if they fail at court. For the economy, the question is if there remains a properly functioning banking sector, and also if the result of the ongoing court procedures will be convincing enough for foreign investors who bring much-needed FDI into Hungary, regarding the security of direct investment made in the country.

Should all banks and oher creditors lose their cases on all of their loan products at court, as the government and the central bank seem to expect and hope, it could mean the end of all lending to households, as in this case, practically all existing loan products would be declared...

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