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FX loans
set record before crisis
September
saw a record amount of foreign currency loans taken out by Hungarians. Some HUF
81 billion worth of Swiss-franc-denominated mortgages were taken out in
September, compared to less than HUF 10 billion in the Hungarian forint. In the
same month, HUF 109 billion of CHF-denominated personal credit was issued, five
times the volume of HUF personal loans issued.
The
relatively low lending rate of the Swiss currency means that Hungarian banks
could offer CHF-backed housing loans to Hungarians with an interest rate of
around 7%, compared to 13.5% for HUF loans. The situation was similar for
personal loans. Banks were offering personal CHF loans at an average APR of
19.5%, while a forint-denominated loan averaged 26.5% in September.
Hungarian
banks have taken full advantage of low interest rates on CHF loans. They were
able to borrow cheaply; for example the Swiss national bank’s three-month LIBOR
rate was 2.75% in September. This means they were able to offer CHF-denominated
loans to Hungarian consumers with a profitable mark up, while still keeping the
interest rate lower than a forint loan. The National Bank of Hungary’s (MNB)
base rate was 8.5% in September. It is now 11.5%.
Forint weakens
However,
fear began to spread in October as the value of the forint plummeted from 240
to 285, threatening to dramatically increase the monthly mortgage payments of
hundreds of thousands. With recession looming and wages on hold, there was talk
of an imminent wave of defaults.
On the 22
October, the MNB hiked its base rate to 11.5% amid fears that currency
speculators could drive the forint down. Then on 29 October, Hungary was
offered a massive loan by the IMF, European Commission and World Bank. These
measures appear to have injected confidence into the markets, as the
announcements were followed by a rally on the Budapest stock exchange and the forint firmed
to around 260 to the euro.
Products pulled
Nevertheless,
with a difficult interbank lending market, and Hungary expected to enter a
recession next year, local banks have drastically limited the amount of FX
credit on offer to Hungarian customers. Some no longer offer any
foreign-currency loans, while others have limited or stopped lending in “risky”
currencies such as the CHF and Japanese yen, but continue to offer euro loans,
which are priced between CHF and HUF credit.
FX lending
is not going to disappear entirely, but it looks likely that the spending spree
seen in Hungary
during the last few years is over. Fortunately, there is almost no similarity
with the US
sub-prime mortgage market. The average loan-to-value ratio for a mortgage here
is way below the western European level, at around 50%. Two years of a
government austerity package means Hungarians have had less money in their
pockets, and house prices had already stagnated before the financial shockwaves
from the US
added to their woes.
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