Hungary's government has backup plans at the ready if its controversial new foreign currency mortgage repayment scheme fails an international legal challenge and is ready to fight with banks as long as necessary, the prime minister said. A bill submitted to parliament late on last Friday would allow borrowers to repay their expensive forex loans at a big discount to market exchange rates, forcing all losses of such transactions on banks, who have sharply criticised the plan.
The central bank has said the solution could threaten financial stability.
"We are ready for each domestic and international fight with banks and politicians on their side," Prime Minister Viktor Orbán was quoted as saying by the Blikk daily in an interview published on last Saturday. "We have a solution at the ready that we can pull out of the drawer in case our current decision is banned by the international court and we will continue our struggle against the banks until we prevail," Orbán was quoted as saying.
Under the proposal, subject to parliamentary approval, borrowers would have the option to repay Swiss franc and euro mortgages at 180 forints per franc and 250 per euro in one go.
Banks in Hungary -- already slapped with Europe's highest financial sector tax -- have called the plan "unacceptable" and promised a legal challenge. The bill sets Dec. 30, 2011, as the deadline for borrowers to apply for early repayment of their loans. After an application is submitted, banks would have 60 days to prepare for the termination of the loan contract.
Orbán said borrowers would not face penalties if for some reason they cannot manage to pay back their loans in one go and opt to remain in their existing loan contracts. "Clients can signal to banks (by the end of the year) whether they want to take advantage of this opportunity. If at the end of the day they do not, or cannot, it will have no consequences," Orbán was quoted as saying.
"We have not the least doubt that forint loan products will appear on the market in an instant. The government and the (financial markets regulator) PSZÁF will constantly be on the lookout to ensure that people are not fooled again."
UniCredit unit Bank Austria was shocked by Hungary's plan to make banks swallow losses on the clearing of foreign currency loans at fixed exchange rates well below market rates and may put business plans on hold there, its head of business in eastern Europe told an Austrian newspaper. "This new law will unleash shock waves. We will not scale back our presence in Hungary, but are considering putting our expansion on ice," Gianni Papa told Wirtschaftsblatt in an interview published on Wednesday. While he said the entire plan is not crystal clear yet, "what is clear is that these measures changed the rules of the game and the consequences will be greater than only the financial ones."
"Unfortunately, the situation will be even worse," Orbán responded to one of the questions put forward by the readers of the country’s leading tabloid Blikk. The readers asked why the forint eased by 32% against the Czech koruna during the eight years the Socialist Party (MSZP) was in power and why it depreciated another 12% since Fidesz has taken office about 18 months ago. The questions and the answers were published in Blikk’s last Saturday issue. "Unfortunately, the situation will get even worse. Public debt was previously not so important with regard to exchange rate changes than it is presently. What we are feeling now is the impact of that," the PM replied.
Source: Reuters, Portfolio.hu