The proposed bill will put a slightly higher burden on banks than expected, about $ 1,000 billion. According to analysts interviewed by MTI, most of the elements of the legislation were expected, but they were surprised by the moratorium on interest rate increases imposed by April 2016 and the inclusion of redundancies in the proposal.
Instead of the previously expected $ 600-900 billion, a bill filed on Friday about the rules on clearing rules could mean a loss of $ 1,000 billion to banks, but it did not come as a surprise on substantive issues, said Andres Bato, senior analyst at ING Bank.
Provisioning was started for this in the second quarter, with the banking sector already earmarking $ 350 billion, which made the sector unprofitable.
The repayment burden of foreign currency borrowers will be significantly reduced, which will support the growth of household consumption, the analyst stressed.
He added, however, that the banking system will not be able to support economic growth in the short term – next year – financial institutions are expected to be made redundant and lending will tighten further.
Andres Bato pointed out that the capital adequacy ratio of the Hungarian banking sector is 17-18 percent, which is not expected to fall below the critical level, but some banks may be forced to raise capital or reduce their balance sheets.
The expert also found it unfavorable that, under the bill, foreign currency lenders are much better off than borrowing forint loans.
According to the analyst, it is essential that those who have already repaid early repayment are only subject to conditions, after deducting the exchange rate rebate previously received. Still, foreign currency lenders received a very significant discount on early repayment, and further compensation would be unjustified, he said.
Gina Gerber, senior analyst at Erste Bank, also pointed out that the sector’s total expected cost of $ 1,000 billion is slightly higher than previously expected. He added that the settlement process is complicated and it is not yet clear how much they will have to repay, as the methodology will be regulated by the National Bank of Hungary (MNB).
Foreign currency lenders can write off about $ 1,000 billion of their outstanding receivables, reducing the amount of credit and reducing installments. Gina Gerber also stressed that the capital position and lending capacity of the banking sector will deteriorate.
As an unexpected element of the bill, as it is not excluded that market processes will force the MNB to raise its base rate by the end of next year. According to Gina Gerber, the exchange rate of the forint will also be a critical question. This bill has not yet been tabled. He added that forint conversion at non-market rates could have a further negative impact on the domestic money markets and could lead to further depreciation of the forint (MTI).