Curing a franc poisoning

6 October 2011 By Ian Campbell

A new law gives relief to Hungarian borrowers who took out mortgages in foreign currencies. The banks are outraged, but they should suffer for their reckless selling. Still, more burden-sharing is called for. After all, regulators were negligent and borrowers unwise.

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Fitch Ratings said the Hungarian government’s measures to deal with the problem of high foreign currency debt exposure poses risks to the banking sector and to Hungary’s reputation among investors.
Fitch said that the Hungarian government’s stipulation in September that holders of foreign-exchange denominated loans would be given until end-2011 to opt for full loan repayment at exchange rates of 180 forints per Swiss franc and 250 forints per euro, approximately 25 percent below current market rates, meant the financial costs of the measure would be “borne exclusively by the banking sector.”
Assuming a 25 percent take up of the scheme, Fitch said early loan repayment would absorb approximately 1.5 percentage points of the sector’s Tier 1 capital ratio. Fitch said this would not create an immediate need for recapitalisation by either the parent banks or the sovereign.

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