May 18, 2011 / 2:16 PM / 8 years ago

UPDATE 1-Hungarian govt offers banks new deal on FX loans

* Allows repayments to be fixed at CHF/HUF 160, EUR/HUF 250

* Sees strict quarterly liquidation quotas, deal on bank tax

* Bank Association says talks with govt have not ended yet

(Adds detail, background)

By Marton Dunai

BUDAPEST, May 18 (Reuters) - Hungary has proposed a new and final offer to banks on the problem of defaulting foreign currency borrowers, as it tries to stabilise the mortgage market and kickstart lending, a government document showed.

Households in Hungary took out trillions of forints worth of foreign currency-denominated mortgages — mainly in Swiss francs — before the financial crisis, and many fell behind on their payments when the franc subsequently appreciated CHFHUF=.

Fearing masses of people losing their homes, the government last year imposed a moratorium on repossessions, but the measure is expected to be lifted on July 1, replaced by a series of measures to protect troubled borrowers.

The document, seen by Reuters on Wednesday, proposes fixed exchange rates for the foreign currency loans along with quotas on repossessed property the banks can sell off and an extended bank tax designed to help plug the budget gap — in line with the government’s reform programme unveiled in March.

The document is a letter dated May 12 written by Economy Minister Gyorgy Matolcsy and sent to Hungary’s Bank Association, whose members include OTP Bank OTPB.BU, as well as Hungarian subsidiaries of Italy’s UniCredit (CRDI.MI) and Austria’s Erste Bank (ERST.VI) and Raiffeisen Bank International (RBIV.VI).


The Association said negotiations with the government had not ended. “I very much trust that there will be an agreement. The Bank Association wants to agree, wants to negotiate,” spokesman Janos Muller said. He declined to say when the talks could wrap up.

Government officials were not immediately available for comment.

The centre-right government and the country’s banks have been in talks for weeks over how to resolve the problem of defaulting mortgage borrowers.

According to the document, the government wants banks to fix the conversion rates on Swiss franc-denominated mortgage payments at 160 forints per franc, and euro denominated loans at 250 forints per euro, at clients’ request.

These rates, applicable only to clients of good standing, are well below market rates or previously proposed levels.

The government also wants banks to agree to pay a special financial sector tax in both 2013 and 2014 at about half of current levels — as pencilled into the government’s March reform programme — unless European Union countries agree on a lower level for an EU-wide bank tax.

In the latter case the government would lower the bank tax to the EU level.

The proposal also stipulates strict conditions on lifting the moratorium on repossessions. It proposes quotas on liquidations so that in the first year, banks could sell just 1 percent of the collateral behind bad loans per quarter, which would increase to 2 percent per quarter in the second year and further in years three and four. (Editing by Elaine Hardcastle and David Holmes)

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