ECB's Nowotny warns on Hungary fx mortgages
* Hungary fx loan risks "particularly acute" on HUF fall
* So far no "dramatic rise" in delinquencies
* Austrian banks among main lenders in Hungary
By Boris Groendahl
VIENNA, Sept 20 (Reuters) - Mortgages in foreign currencies are an acute risk in Hungary, where homeowners borrowed heavily in Swiss francs and are now suffering from the forint's depreciation, the head of Austria's central bank warned on Monday.
Governor Ewald Nowotny and his central bank have long been critical of Austrian banks, which collectively are the biggest lenders to Hungarian borrowers and expanded foreign currency lending aggressively during Hungary's boom years.
"The central bank has long warned of the dangers of foreign currency loans," Nowotny said in an Internet chat with readers of Austrian daily newspaper Der Standard.
"For Hungary the risks are particularly acute because of the combination of the rise in the Swiss franc CHFHUF= and the fall in the forint," he added.
A fresh rise in risk aversion has prompted investors to pile money into safe haven currencies, driving the Swiss franc to record highs against the euro in early September and putting pressure on Hungary's currency and government bonds.
Hungary's key vulnerabilities -- a huge stock of foreign currency debt and poor growth prospects -- come under the spotlight when investor sentiment sours. The global crisis in 2008 paralysed its bond market and drove the country to seek IMF aid.
Franc loans make up about half of Hungary's household debt stock and the Swiss currency's appreciation means borrowers are being pushed to their limits to meet payments, driving up non-performing loan (NPL) rates.
In July, Hungarian households' Swiss franc loan stock, which includes home and equity mortgages and car loans, totalled a massive 5.7 trillion forints ($26.5 billion), or around 27 billion francs. [ID:nLDE67U164]
Households' NPLs in the banking system rose to 8.1 percent in June from 7.3 percent in March. However, Nowotny pointed out that households tend to delay a default on their mortgage as long as possible.
But as they scrape together funds to cover their mortgage debt, spending on other goods may suffer, which further weighs on economic growth, he said.
"That has not, at least not until now, led to a dramatic rise in delinquencies, although the affected households are forced to make savings in other areas because of this," Nowotny said in the chat.
Austrian banks including Erste Group Bank (ERST.VI) and Raiffeisen International RIBH.VI collectively are the biggest lenders to Hungarian borrowers, according to statistics by the Bank for International Settlements.
German, Italian and Belgian banks follow in the ranking, reflecting the strong position of BayernLB [BAYLB.UL], Intesa Sanpaolo (ISP.MI), UniCredit (CRDI.MI), and KBC (KBC.BR) in the Hungarian market. [ID:nLDE65714B] [ID:nLDE656120]. (Additional reporting by Krista Hughes in Frankfurt and Krisztina Than and Sandor Peto in Budapest; Editing by Susan Fenton)
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