UPDATE 1-Hungary FX loan plan weighs on exchange rate-cbanker

* Govt FX loan scheme weakens fin stability -Kiraly

* Banks' ability to withstand shocks weaker than in April

* No exchange rate target, cbank aims to curb volatility (Adds more comments, background)

By Gergely Szakacs and Krisztina Than

BUDAPEST, Sept 22 (Reuters) - The Hungarian government scheme to let foreign currency mortgage holders repay their loans at fixed exchange rates below market levels puts pressure on the forint and will cause big losses to banks, the central bank's vice governor said on Thursday.

The forint has eased about 9 percent versus the euro since the end of June and the controversial new law, which was approved on Monday, has weighed on the exchange rate in recent weeks.

"The debtors who will be able to participate in the programme represent just a smaller part of all clients. At the same time, even this smaller sphere puts pressure on the exchange rate, which worsens financial stability and the position of clients not participating in the programme," Julia Kiraly told a Thomson Reuters business conference.

She later said on the sidelines of the conference that even cancelling this reduced stock of debt would impose substantial losses on the financial system, which would weaken banks' ability to support economic growth by extending credit.

"On the systemic level, we see that the amount of repayment can reach a point where it could pose a serious stability risk," Kiraly said.

"One thing is for certain, it means a loss for the banking system that erodes the capital needed for growth, so it is definitely a drag on growth."

Governor Andras Simor said on Tuesday, after the bank kept its key base rate on hold at 6 percent , that the central bank (NBH) had the instruments needed to cushion the effects of risks to financial stability.

He said the NBH would provide Hungary's banks with foreign currency from its reserves needed for the mortgage repayments, based on the needs of the banks.

Central bank's estimates show that about 20 percent of the entire foreign currency loan stock of about 5.55 trillion forints could be affected by the controversial repayment scheme.

Kiraly said the shock-absorption capacity of the banking system was weaker now than it was in April when the central bank last completed stress tests. New stress tests are expected to be published in October.

"It is weaker than in April. Measures made in the recent past increase financial stability risks...but the banking system entered the second phase of the 2010 double dip with a very strong capital and liquidity buffer," Kiraly told Reuters.

The forint is now trading around 292-294, significantly weaker than 272 at the end of August.

When asked how worried the bank was about the forint's levels, Kiraly said: "We do not have an exchange rate target but we would like to temper volatility."

"The reason we said what we said on Tuesday was that we wanted to alleviate pressure exerted on the exchange rate via expectations, which can cause a sudden change, and we still consider this stance appropriate," she added.

Kiraly reiterated the monetary council's view, published in its statement on Tuesday, that the uncertainty on financial markets warranted a wait-and-see approach in rate policy.

The bank has kept its key interest rates on hold for the past eight months. (Reporting by Krisztina Than/Gergely Szakacs; editing by Anna Willard)