FX mortgage loans to households will be converted into HUF at market exchange rates

HUNGARY - In Brief 16 Nov 2014 by Istvan Racz
Fact: Just as we completed our November monthly, the government announced the rules for the upcoming conversion of FX-denominated mortgage loans by banks to households into HUF. Essentially, these loans (currently EUR10.8bn or HUF 3350bn, which will likely fall to EUR 8bn at net value, following the substraction of compensations on account of unfair lending practices) will be converted at the market exchange rates of 7 November 2014, (EURHUF 308.97, CHFHUF 256.6, JPYHUF 2,163). To cover the open FX positions created by fixing the conversion rate, the MNB sold EUR 7.83bn of FX to banks, combined with CIRS swap agreements, on 10 November. The conversion of FX loans will have to take place immediately after the upcoming payment of compensations by banks to households, which is due between March 1 - April 30, 2015. HUF loans, which will replace the current FX loans will be regulated by a new parliamentary act on 'fair banking' (currently in preparatory phase, being discussed by parliament.) Significance: This rather complicated series of uniqely unorthodox transactions and regulatory events is likely to bring about to the following consequences: 1. Creditors (bank and non-bank) are expected by the MNB to suffer a total HUF932bn (2.9% of GDP) one-time loss in gross terms, due to compensations they will be forced to pay between March and September 2015 on FX and HUF-denominated loans to households, on account of unfair lending practices followed over the last ten years. Of this, HUF732bn should be suffered by banks, the net loss of banks reaching an estimated HUF608bn. The difference between gross and net comes from the fact that among other claims, banks will be forced to w...

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