BUDAPEST: Banks in Hungary will have to convert foreign currency mortgages into forints in December, a ruling party lawmaker said late on Saturday, adding that the government could offer to share some of their exchange rate losses.
The conversion, and another new law passed on Friday which compels lenders to repay large sums to borrowers for unfair charges and interest rate hikes applied on loans in the past decade, are expected to mean more losses for Hungary's already heavily taxed banks.
Budapest wants the banks to convert about $15 billion of mainly Swiss franc and euro mortgages into the local currency.
The scheme by Prime Minister Viktor Orban's government aims to get rid of the loans, taken out cheaply before the 2008 financial crisis but which have become expensive for households to service as the forint has declined in value.
The National Bank of Hungary estimates that compensating borrowers for unfair charges based on Friday's legislation will cost 600 to 900 billion forints ($2.6-$3.9 billion) to banks.
Their losses from the conversion will depend on the exchange rates to be used.
Antal Rogan, head of the ruling Fidesz party's parliamentary group, told HirTV that the mortgages would be converted into forints in December.
He said that as a result of Friday's legislation and the conversion, borrowers' repayments and interest rate costs would drop by 25 to 40 percent on their foreign currency loans, with their outstanding principal likely to decrease as well.
He did not say at what exchange rates the mortgages would be converted, but that exchange rate losses on the conversion would be shared between borrowers and the banks.
"It is another question that if the state wants to, it can offer to share some of the banks' losses (on the conversion)," Rogan told HirTV.
Rogan also said that a bad bank to be set up by Hungary's central bank would buy banks' non-performing assets at 20 percent of their face value. {ID:nL6N0OG1E1}
Shares in OTP Bank and Austria's Erste fell on Friday after parliament approved the new law.
Erste, central and eastern Europe's third-biggest lender, had warned late on Thursday that it will post a record loss in 2014 due to hits in Romania and Hungary. OTP Bank said the bill would curb its second-quarter pre-tax earnings.
Banks in Hungary earned strong profits for most of the past decade but since 2010, they have been paying hefty special taxes under Orban's administration.
Banks in Hungary include units of Belgium's KBC, Austria's Raiffeisen Bank and Erste Bank, Italy's UniCredit and Intesa Sanpaolo, and German-owned MKB Bank.
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