As of 1 February, the law on the conversion of forex loans into forint-denominated instruments enters into force. The provision fixes conversion rates at CHF/HUF 256.47, EUR/HUF 308.97 and JPY/HUF 2163. The law on fair banks defines stricter conditions for unilateral changes in interest rates, charges and fees.

The National Bank of Hungary (MNB) has provided EUR 9bn from international reserves for the conversion scheme and banks’ refunds.

The bill on the modification of certain consumer loan contracts and interest rate regulation was adopted by the National Assembly in November 2014. The conversion scheme includes the exchange of interest, charges and fees as well.

The converted forint loans will be 3-month BUBOR-linked floating rate instruments. According to the decision of the Parliament, the interest rate premium must be changed to the one used at the time of taking out the loan, but it cannot be less than 1 percent and more than 4.5 percent in case of a home mortgage or 6.5 percent for a home equity loan.

Borrowers are entitled to request an exemption from the conversion scheme provided they fulfil one of four criteria: for example, they have a contract that expires until the end of 2020 or they would be obliged to pay a higher interest on the new instrument compared to the old one. Bank clients with regular income in the same currency in which their loan is denominated are also exempt and so are those who are permitted to take out a forex loan based on the payment-to-income ratio.

Minister for National Economy Mihály Varga has earlier said that more than 400 thousand forex borrowers have opted for the conversion scheme and thus they will be rid of exchange rate risks. In light of MNB data, more than 35 percent of forex household mortgages will expire within the next five years.

The law on the so-called fair banks was also adopted last year by the Parliament. The provision defines stricter conditions for unilateral changes in interest rates, charges and fees; it also regulates the terms of providing information prior to the conclusion of a contract and the terms of modifying contract conditions -- in line with the Kuria’s resolution on the uniformity of the law.

According to the law, only conditions such as loan interest, interest premia, charges and fees are allowed to be modified in a way that adversely affects consumers. In case a contract does not fulfil criteria on unilateral lender modifications, it can be declared void.

(Ministry for National Economy)