As of the beginning of February, forex home loans -- or other types of foreign currency loans -- will be converted into forint loans and thus the problems caused by these financial products will also vanish from the Hungarian financial system, Minister for National Economy Mihály Varga said at a press conference on Saturday.

The Minister stressed that the first of February is a historic milestone, as the conversion of forex loans and bank refunds begin and the law on fair banks enters into effect. Through the conversion of forex loans the Government shields households, local governments and the state budget from incurring extra debts of HUF 1000bn, he added.

The Government and the Hungarian Banking Association, he stated, agreed that banks are to maintain the current, self-imposed foreclosure quota system for the duration of the conversion process and until banks fulfil their refunding obligations.

Mihály Varga pointed out that the eviction moratorium will remain as another instrument for the Government to assist families in trouble.

The Minister called the phasing out of forex loans the most important economic policy measure of 2015. He emphasised that the value of forex home equity loans and home mortgages, which are about to be converted into forint loans, totals HUF 3600bn and thus the homes of half a million families are saved from the effects of extreme and unforeseeable exchange rate fluctuations. Due to bank refunds, loan instalments will be 25-30 percent lower.

Mihály Varga said that a genuine financial catastrophe has been avoided. The Minister added that the country’s vulnerability stemming from forex debt has also decreased, as the total amount of potential loss resulting from exchange rate differentials would have been HUF 1000bn. This is the amount that the Government has saved for households, the state budget and local governments. He stressed that the conversion scheme was also beneficial for banks, as without it the number of defaulting customers would have increased and non-performing loans would have forced banks to earmark a large amount of extra provisions.

The Minister for National Economy said that the Government welcomed the verdict of the Constitutional Court that states that the law on bank refunds is in harmony with the Basic Law of Hungary.

As he explained, forex borrowers are to receive official letters from their banks in the course of March and April with information on refunds and the process of conversion. In case a customer disputes the bank’s calculation, he/she is entitled within 30 days of receiving the document to submit a letter of complaint to the bank. If the consumer and the bank fail to come to an agreement, they can turn to the Financial Arbitration Board of the National Bank of Hungary (MNB).

Mihály Varga pointed out that the Government’s measures have been exemplary for Europe and the international press has also praised these steps. Renowned economic papers, such as The Economist or The Financial Times, have also voiced appreciation of the Government for taking timely and pre-emptive action.

In the opinion of the Minister, the phasing out of forex loans required the Government measures implemented after 2010, which were aimed at correcting the faulty decisions of the previous Socialist governments such as the failure to sufficiently regulate banks’ lending practices. The conversion scheme also required prior measures by the National Bank of Hungary and the Curia verdict. The Minister called attention to the fact that in 2010 interest rates were so high that a sudden conversion would not have provided relief for forex borrowers. On the other hand, conversion in 2010 would have wiped out the entire amount of MNB forex reserves and that would have had unforeseeable consequences on the forint exchange rate. The Minister, however, emphasised that current lower interest rates are also the result of better economic indicators.

(Ministry for National Economy)