Lawmakers Can Modify Forex Loan Contracts, Hungary’s Constitutional Court Rules

  • 18 Mar 2014 8:00 AM
Lawmakers Can Modify Forex Loan Contracts, Hungary’s Constitutional Court Rules
Existing contracts for foreign-currency mortgages may be modified by legislation, Hungary’s Constitutional Court ruled. Its decision came after the government asked the court to weigh the constitutionality of several conditions in the forex loan contracts. Among the government’s concerns was that borrowers had not been warned of the risks that a falling exchange rate would have on their monthly repayments.

Bálint Török, an analyst with Buda-Cash Brókerház, said today’s Constitutional Court decision theoretically allowed for the retroactive modification of contracts. At the same time, the banks may challenge the law in the Constitutional Court if the government tries to push the costs on to the banking sector, he added. Ákos Horváth, an analyst with Equilor, said the government was not expected to make a final decision on forex mortgages until after the April general election.

The rise in the share price of OTP Bank suggests the market had assumed a far worse scenario, he added. At the Budapest Stock Exchange, OTP Bank shares were up 2.13% at 3,700 forints at around noon after closing on Friday at 3,623. The radical nationalist Jobbik called for parliament to be convened immediately to settle the situation of forex mortgage holders.

Deputy parliamentary leader MP Dániel Z Kárpát criticised the government for “manoeuvring between the interests of banks and mortgage holders” and “cowardly shifting responsibility” to the next parliamentary cycle.

Green party LMP said the Constitutional Court’s ruling did not give a satisfactory or immediate solution to the problem of forex loans but rather passed on responsibility to parliament. In turn, lawmakers will be forced to pass back responsibility to the courts, the chairman of the opposition party’s advisory board, Péter Róna, told MTI.

Based on the law, the lender has an obligation to establish whether or not the loan can be paid back. It is possible to do this if the debt is in forints, but otherwise it is not possible to establish how much the bank is owed if the exchange rate fluctuates.

In this case, the lender is not in a position to establish whether or not a client can cover the repayments, he said. This is a problem that the Hungarian legal system has avoided over the past six years, Róna added.

The Hungarian Banking Association said that the top court had not created a new situation with its ruling but made it clear that examining the individual contracts did not fall within its scope.

The association said it still considered the Kúria’s position which confirmed the validity of forex contracts last December as relevant. Gergely Gulyás, a lawmaker for the ruling Fidesz party, welcomed the top court’s ruling as “a clear message” to legislators in the next parliamentary cycle. If Fidesz is re-elected, it will completely phase out forex mortgages, he told a press conference.


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