beyondbrics

The forint’s precipitous fall against the Swiss Franc continued on Monday, adding to concerns about the 1.5m Hungarian borrowers whose foreign currency loans have become more difficult to repay.

In spite of recent interventions by the Swiss National Bank to prevent the franc appreciating, the forint last week fell to a 15-month low against the Swiss currency. On Monday it declined a further 1 per cent to approach an all time low.

In a country where the Swiss franc accounts for about 60 per cent of residential mortgages and 30 per cent of all bank loans, ordinary Hungarians have become painfully familiar with the slings and arrows of the forex markets.

But fear not, the crowd-pleasing new government has a plan!

According to newspaper Magyar Hirlap, prime minister Viktor Orban’s administration is considering setting up a fund to help troubled borrowers.

Reuters reports: “Under the plan, the government would set up a National Asset 
Management fund, which would purchase real estate put up as
 collateral from commercial banks, allowing mortgage holders to
rent the property… The paper also said that the bad loans of households would
 be replaced by state loans.”

It wasn’t all that long ago that taking out a foreign currency loan in parts of central and eastern Europe seemed like a no brainer.

Borrow at low interest rates and sit back as the purchased asset – let’s call it a house — rose in value or one’s personal income swelled sufficiently to make repayment a walk in the park.

But millions of consumers across parts of central and eastern Europe have since discovered that currencies do not always follow a predictable course.

As unemployment rose, weakened domestic currencies made their loans even harder to repay, threatening further pain for the mainly foreign-owned banks that issued the credits in the first place.

Helping forex borrowers has since become one of Fidesz’s pet-projects –it first floated a plan for a state-backed fund to subsidise the conversion of forex loans into domestically denominated credits back in May.

But it might do well to remember that the best thing it can do to help foreign currency borrowers is to restore investors’ trust in Hungary

After the missteps of his first days in office (when aides casually compared Hungary to Greece) Orban seems to be finding his feet, not least with a recent economic plan which had some analysts swooning.

But the government will have to do much more to fight Switzerland’s allure. Judging by the reaction of financial markets on Monday, it still has a way to go.