Foreign currency loans: what will happen now?

It was as if I had a private contract for computer maintenance that said a flat rate of $ 10,000 a month plus an exit fee of 100 ft / km for maintenance on the company’s premises. Then the court tells me 8-10 years later on what right I charged the mileage fee when I could go on foot and otherwise it wouldn’t cost me 100 forints per kilometer. If you had said this before, I’d run for 40,000 a month, at no charge. The bank would have said it would be good to get you free, but the management cost per year is not 1% but 1.5%.

Anyway, it was definitely an interesting decision

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The other decision is the issue of unilateral interest rate increases. The court is right about this, the banks have actually (re) used this tool, to say the least, because of the brain-bank tax losses.

This is going to be a steeper amount, and it is also interesting whether it can be generalized on the issue. If the bank listed when, for what reason, it raised interest and did not deviate from it, it was not unjust to raise it. There will be more lawsuits here.

These two decisions already cost the banks $ 6-900 billion. But that’s not the end.

The government felt that it could be fought again if it had failed so far (remember the debt fight that went down badly? The government and the bankrupt chimney sweepers, garbage trucks, billionaire-aided public utilities?).

So they quickly announced that gaz banks would pay for everything, and even foreign currency loans, forints.

In fact, since most foreign currency loans would not be able to enforce claims due to limitation, even after this, the government, as usual, denied all rights, stated that it would be preferable to have 10 years, so only in this case. Populism is more important than the rule of law, but this is not the first time we have seen it. (But it’s always a worry.)

So the final bill can be even thicker than the amount mentioned above.

The big question is, what about the banks now and what about the forint?

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Most banks, according to the MNB, will survive the new blow, though it is quietly noted that “while average capital adequacy is good, aggregate coverage implies significant heterogeneity. The capital adequacy ratio of the banking system is also 15% on the stress track, but there are two large banks that would perform less well than the others, in which case the continued commitment of the owner is “particularly important”. “

This is exactly what you think in flower language. If the foreign owners of these two banks think they’ve had enough of their robbery, they don’t bring new money to Hungary and then make another special tax, transaction tax, or retrospective payment, then we’ll be bathed here.

But we hope for the best, if the foreign bank owners think that the market will be good now and it is worth staying at any price.

The next question is, what about the forint if the government really wants to convert all foreign currency loans into forints? The price of the forint works on a market basis: if many people want to buy the forint, the forint strengthens. If every bank wants to buy euros, Swiss francs for forints, its price will drop.

The main question is whether they want to convert them into forints at the same time or whether they will convert loans with some kind of exchange rate-like solution for years. The other question is whether the MNB will sacrifice its foreign exchange reserves so that the forced conversion would not cause over-demand in the market. Third, how much will the artificial exchange rate be below the real?

Of course, it should be noted that the country is very fortunate to have foreign companies here that produce for export, while imports are low due to lack of demand, which provides a strong support (constant demand) for our currency. Therefore, the conversion will be a one-off shock (if any), and in the long run, I do not expect a permanent depreciation of the forint (unless there is a bankruptcy affecting the state as well).

Then there is the question of common sense

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The government is now cutting and distributing free billions out of the banks’ pockets (estimated at 900-1250 billion), but maybe they realize that if they routinely cut into the middle of things and try to use an ax instead of a scalpel, it could be a nasty end. thing.

Here’s the issue of sovereign debt: over 40% of Hungarian sovereign debt is denominated in foreign currency, and growing sovereign debt is already a major concern (now we’re close to 84%, 80.2% at the end of 2010, % of private pension assets have already been filed for the sacred purpose). The Union is just now trying to put the country back on the shame, not least because of rising public debt. However, a 10% depreciation of the forint would immediately increase the government debt by 4%.

So I think it’s too early to say what’s coming in September. (The government promises a final decision by then.)

The question arises as to what will be said about the notion that a foreign currency loaner can do no better than a forint loaner. It will hardly stop, as most foreign currency lenders are already better off than forint.

Another interesting question is how nice it is to distribute $ 1.2 trillion out of the pockets of banks, but how much does this solve the problem of non-performing loans, which affects almost one in five loans?

Well, that’s what I think so far. Looking forward to the resume.