Banks in Hungary will have to pay compensation of about 3.2 billion euros ($4.1 billion) to borrowers hit by past interest rate hikes on loans, under proposed new legislation submitted to parliament on Friday. "The Hungarian banking sector will have to pay back a 1,000 billion forints (3.2 billion euros, $4.1 billion) to families," said Antal Rogan, parliamentary head of the ruling Fidesz party, said.
Prime Minister Viktor Orban, 51, re-elected in a landslide in April, is no stranger to passing contentious legislation and unorthodox economic policies that critics say have sullied the country's image among foreign investors. The new bill - expected to become law in two weeks - will mean commercial banks will also be banned from raising borrowing rates, fees or costs on any outstanding loans until April 30, 2016, Rogan said.
In addition, repayment rates on the loans will be recalculated, meaning that on average borrowers from Hungary's estimated 400 banks will pay 25-30 percent less, the lawmaker said. Some of the compensation relates to large volumes of loans denominated in foreign currencies, mostly in Swiss francs, sold by banks to Hungarians before the 2008-9 financial crisis pushed repayment rates up sharply.
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