Foreign currency loans

On the 4/7/2014, the Hungarian parliament passed a law forcing banks to compensate borrowers for “unfair” conditions in mainly forex loans in the years leading up to the financial crisis.

THE FINANCIAL TIMES reports that the new law will force banks to compensate borrowers for imposing what it refers to as “unilateral” loan interest rate increases and for changing the margin between the issue rate when the loan was sold and the buying rate when repayments were calculated.

It’s been estimated that this new law will cost the banks between €2 billion and €3 billion. Between 2002 and 2009 hundreds of thousands of Hungarians (as well as Cypriots) took out forex mortgages mainly denominated in Swiss Francs. However, like many who took out Swiss Franc home loans to purchase property in Cyprus, they saw the loan repayments rocket as a consequence of the financial crisis.

This new law is part of a bundle of new laws that the government plans to introduce over the next six months phasing out forex loans and converting them to the local currency (Hungarian Forint). Since taking office in 2010, the Hungarian government has made what it refers to as ‘the exploitation of consumers by banks’ one of its key concerns.

Meanwhile an international conference will be held in Cyprus in mid-September attended by delegations from the UK, Cyprus, Croatia, Serbia, Greece, Germany, Hungary, Poland and Montenegro. The objective of the conference is to coordinate action to find a Pan-European solution to the Swiss France loan problem by bringing the matter to the attention of the European Court of Justice and petitioning the European Parliament.