Hungarian banks in relief rally

Shares in OTP, Hungary’s biggest locally-owned bank, rose nearly 5 per cent on Wednesday before relaxing a bit, as economy minister Mihaly Varga promised to “phase out” foreign-currency denominated mortgages. OTP’s chairman said earlier in the day the bank would be damaged by any radical measure. The promise of a gradual approach will be a relief to foreign-owned banks in Hungary, which face heavy losses should the government force them to re-write mortgage contracts, as it has threatened to do.

The move in OTP’s price still leaves the shares about 13 per cent lower than a recent peak last week, before news spread that the bank’s chairman was selling his shares. The broader market was flat on Wednesday.

Hungarians gorged on what were then low-cost foreign exchange mortgages in the approach to the 2008 crisis, when FX loans amounted to 6tn forints (€22bn), nearly a quarter of GDP. Today, such loans are worth about 3.8tn forints and about 800,000 contracts are outstanding.

Exchange rates moved sharply against borrowers following the crisis, wiping out the advantage of lower foreign interest rates. The government has tried several schemes to deal with the problem and recently suggested the contracts were no longer valid because of the big change in exchange rates since they were written.

Wednesday’s move offers some hope that lenders will at least be consulted over finding a solution to the remaining loans. Shares in OTP fell last week as Sandor Csanyi, chairman and chief executive, sold the majority of his shares in the bank.

He said the sale was pre-planned as he wanted to move his investment into agriculture, but that he had sold the shares more cheaply than expected because of the government’s plan to re-write the loan contracts.

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