The story of foreign currency loans can go on
The joy of the participants in the FX-credited story is hardly cloudy. Although years have come to an end, the forint’s gradually weakening forint has overshadowed the burden-reducing effects for borrowers, and financial institutions’ losses may swell even higher as a result of the Fair Banking Act and accepted interest rate moratorium.
This even calls into question the conclusion of the story.
“ The protracted resolution of the problem indicates that it is an extremely complex problem where political will, economic rationality, sustainable growth objectives and the reduction of social costs were fundamentally at odds with one another. In the solution, participants were surprised by the conversion of foreign currency loans at approximately market rates, and experts were surprised by the manner and extent of the utilization of the foreign reserves of the National Bank of Hungary. All this predicts the likelihood of further depreciation of the forint ”
Says Nahabo Alam, senior analyst at Admiral Markets.
In December 2013, the Mansion made a legal unity decision that did not declare mass currency loans to be invalid, and the repayment installments that increased due to exchange rate depreciation continued to burden the borrowing bank customers. Although the Court’s guidelines could have been applied to individual court decisions, the Constitutional Court also issued a resolution at the request of the government in the spring, the most important part of which is that the government may make changes to the contractual relationship in special cases. Accordingly, in the case of large foreign currency loan agreements, the legislature may, in accordance with the CJEU’s unity decision, reschedule the contracts on a “larger scale”, while not undermining the parties’ interests under the new Civil Code.
The government also had to wait for the Mansion to replenish its final FX-denominated rescue package, after which unilateral interest rate increases by the financial institutions and the exchange rate margin used for repayment were null and void. In June, the government filed a bill to reclaim the losses caused by the exchange rate gap charged and unilateral interest rate increases, followed by a draft for the conversion and delisting of foreign currency loans in the fall.
“The use of the central bank’s foreign exchange reserves and the conversion of the forint to the market rate make the development of the forint exchange rate next year questionable.
The forint has been depreciating for years, but the share of retail loans has been increasing. If we add that the banking sector has been burdened with new burdens and special taxes by the government, it can be seen that, although the current foreign exchange saves a story, another chapter may begin. Even if the debt and debt installments of debtors may be significantly reduced, the expected catharsis will not be maintained. ”
The easing of the burden on foreign currency borrowers may even diminish with the expansion of household consumption, which may also stimulate domestic growth. Nonetheless, growth in 2015 may be slower than this year, as one-off effects, such as increased use of EU funds and the upswing in the central bank credit program, will fade. All this, according to Admiral Markets, predicts the uncertainty of the forint’s future: besides the after-effects of the devaluation and the unpredictability of domestic politics, the renewed intensification of geopolitical concerns and the possible exacerbation of the Russian-Ukrainian crisis may also affect the exchange rate of the forint.