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Hungarian Central Bank Sets Aside €1,1 Billion To Phase Out Car And Personal Forex Loans

By Tamás Székely // 2015.06.10.

Hungary’s central bank (MNB) is setting aside 1.1 billion euros in foreign currency for banks involved in converting retail vehicle and personal loans into Hungarian forints. Banks can keep the amount they purchase, without conditions, for up to a year, the National Bank of Hungary  said.

In a report published late in May, Hungary’s central bank said that 30,000 of the borrowers with FX car loans also have a mortgage and warned that defaults on these car loans could become problematic. To mitigate systemic risks, the MNB said in the report that it is considering introducing “macro-prudential tools” that would give lenders an incentive to convert such FX loans by making it more expensive to hold them.

The MNB acknowledged that such a conversion could occur at either the institutional level or by legal means, but added that the legal option would be warranted because of the often low willingness of borrowers to participate voluntarily and the administrative burden posed by leaving banks and borrowers to settle the matter on an individual basis.

Personal and car loans in foreign currency stand currently in Hungary at around 300 billion forints. Despite the conversion, Hungary’s international reserves will remain at an appropriate level in the long term, MNB said, noting its large stock. Earlier this year the National Bank significantly contributed to the process of converting household forex loans to forint-based ones.

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