Foreign Currency Loans – Analyst: Converting Forint to SMEs

The Hungarian Banking Association does not comment on Viktor Orbán’s announcement on the conversion of foreign currency loans for small and medium-sized enterprises (SMEs). According to the Buda-Cash analyst, the intention is logical, but there are several issues in the realization.

Programs will be set up to allow SMEs to convert their foreign currency

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Prime Minister Viktor Orbán announced on Tuesday at the forum of the Hungarian Chamber of Commerce and Industry (MKIK) that the SME sector would also be allowed by the government to convert foreign currency loans into forint loans. In the first half of the year, financial programs will be set up to allow SMEs to convert their foreign currency loans at reasonable terms, he said.
According to preliminary data from the Hungarian Financial Supervisory Authority, at the end of 2012, SME loans amounted to HUF 3,360 billion, of which nearly one-third – HUF 1,014 billion – was foreign currency loans.
The Hungarian Banking Association said on Tuesday that it would not comment on the prime minister’s announcement.
Bálint Török, an analyst at Buda-Cash, called the intention itself logical, but added that the implementation raises serious questions and that the details are unknown, but one can only speculate on the implementation. The expert pointed out that, as it is likely to affect a larger portfolio than retail foreign currency loans, the conversion of SME loans may have an even greater impact on exchange rates, including the forint.

Companies that export a lot are more likely to have debt in foreign currency

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But SMEs that have taken out foreign currency loans because of the cheapness of the loan would be willing to convert, he said. Bálint Török explained that both market and non-market based conversion raise several issues, mainly because, in his view, there is hardly any solution with which neither player suffers a loss of interest.
The analyst said that it would not be worthwhile to swap foreign currency loans on the market, mainly because the forint is weakening at the moment. If loans are converted to forint on a non-market basis, the question arises as to who bears the cost. According to Bálint Török, the role of the National Bank of Hungary (MNB) may arise here, or the central bank may share the costs with the financing banks.

Conversion at the exchange rate may cost several hundred billion forints

Conversion at the exchange rate may cost several hundred billion forints

Which cannot be borne by the general government, thus leaving the reserves of the MNB or the banks.
According to Bálint Török, it is difficult to elaborate and complete the conversion within a few months, and it should also be taken into account that Mihály Varga, Minister of National Economy, said he wanted to negotiate a solution with the banking sector regarding the conversion of retail loans.
Transferring the costs of conversion to banks would not be logical either, according to Bálint Török, nor is it obvious that the aim is to boost lending in Hungary. According to the expert, there could also be public funding through the public banking system (MTI).

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