Foreign currency loans – Analysts: uncertainty remains

The legal opinion of the Advocate General of the European Court of Justice did not dispel the uncertainty about foreign currency lenders, according to analysts reporting to MTI, who believed that it might take a long time to make a real decision on the exchange rate differential.

The Court may examine whether it is unfair to apply a foreign exchange margin


According to Nils Wahl, Legal Adviser to the European Court of Justice’s appointed Advocate General, the Court may examine whether it is unfair to apply a foreign exchange margin to foreign currency loans.
Market players expected a general, clearing statement, after which the Mansion could provide guidance.

From the Advocate General’s statement, it seems that the European Court of Justice considers it necessary to make individual decisions, which would likely prevent the Court from making a general decision on the exchange rate margin, said Bálint Török, an analyst at Buda-Cash Brokerage House.

The expert finds it too early to draw meaningful conclusions

Pointed out that the European Court of Justice is expected to give its verdict in three to four months, followed by the Court’s ruling.
The news has weakened Goodbank’s shares on the Budapest Stock Exchange, although Bálint Török says that the solution is not much closer in terms of actual economic and legal results.
Banks will certainly face some losses in settling foreign currency loan contracts, but this is not quantifiable at present for Goodbank, other financial institutions, or the economy as a whole, said Balint Török.
Ákos Kuti, senior analyst at Equilor Investment Ltd. also believes that the picture is not clear yet.
According to the expert, according to the Advocate General’s opinion, there seems to be an increased likelihood of a bailout decision in favor of borrowers, but the FX-denominated contracts will not become void. He added, however, that there were still many question marks, and uncertainty remained.
The resolution itself did not move the forint exchange rate, nor does it influence economic planning outside banks, the analyst said.
According to a series of articles published by the National Bank of Hungary (MNB) in August last year, banks gained a total of HUF 60-70 billion a year in foreign currency-denominated mortgage contracts by unilaterally raising interest rates and widening the exchange rate margin. Borrowers face significant costs in the exchange rate gap (the difference between the type of loan used to disburse and repay the loan), either in relation to the central rate or to the purchase rate, which has been significantly increased and in many cases doubled by banks after the crisis.

As a result, the broader exchange rate margin

Even at a rate substantially lower than interest rate increases, has further increased the burden on the client. The total cost of credit was raised by an average of 35-45 basis points, according to the MNB’s calculations, compared to the banks’ repayment installments at mid-rate. The MNB also noted that the banking system was able to generate an annual surplus of around HUF 5 billion through the exchange rate margin before the regulation in 2010, but since then it has realized only half of that amount (since mid-2010}