Hungary banks take €540m hit

Banks operating in Hungary have had to swallow some €540 million in losses because of a controversial government scheme aimed at helping stricken homeowners, figures showed last Thursday.

Hungary’s repayment programme drew fire from the ECB

Introduced in September, the programme allows Hungarians who took out mortgages denominated in other currencies and hurt by a sharp fall in the forint to repay early and at artificial exchange rates, notably against the Swiss franc.

It is one of several unorthodox economic policies of Prime Minister Viktor Orban to have spooked international investors in recent months, further exacerbating the forint’s woes and sending government bond yields soaring.

Other controversial measures include changes to the organisation of the central bank which last month prompted the IMF and the EU to break off preliminary talks about a €15-20 billion credit line.

According to figures last Thursday from the PSZAF financial market regulator, as of December 31 close to a tenth of one million homeowners with foreign currency mortgages took advantage of the scheme.

“Losses for financial institutions are approximately 174 billion forints (€539 million) until the end of December,” it said, with 97 per cent of those taking advantage having had mortgages in Swiss francs.

Alarmingly, the PSZAF added that a further 100,000 people had signalled their wish to reimburse their debt but have not done so yet, which “creates significant uncertainty for the lending sector.”

The scheme allows Hungarians to repay at 180 forints per Swiss franc and 250 forints per euro, compared to Thursday’s market rates which stood at 263.46 forints against the franc and 321.09 forints versus the euro.

Seen as a safe haven in times of crisis, non-EU Switzerland’s currency soared in 2011.

This compounded problems for Hungarian households who rushed to take out foreign currency loans worth trillions of forints before the financial crisis in 2008, and struggled to repay their mortgages as the forint sank.

In mid-2008, the Swiss franc was worth about 140 forints, almost half the current rate.

Hungary’s repayment programme drew fire from the ECB, which called it a threat to lenders, while Austria, whose banks have a strong presence in the Hungarian banking market, filed an appeal with the European Commission.