Hungary's central bank is prepared to provide foreign currency for the country's banks from its reserves to ensure a smooth conversion of households' foreign currency loans into forints, the central bank's vice governor said on Saturday. The Swiss franc and euro mortgages of Hungarian households, which the government plans to convert into forints next year, are booked as forex assets on commercial banks' balance sheets. To be able to close these positions, banks will need foreign currency when the conversion comes.
If they bought that in the spot market the forint would fall, so the central bank will step in, using some of its reserves which stood at 35.22 billion euros at the end of July. National Bank of Hungary vice governor Adam Balog told a conference that the first time banks will need foreign currency is when they settle refunds with their clients on past loans, in line with a June court ruling which said that banking practices had been unfair in some cases.
These refunds could cost the bank sector an estimated 3 billion euros, according to the central bank. After this, banks will need even more foreign currency funding for the conversion of foreign currency mortgages, which the government said could happen in the spring of 2015. "We believe these conversions (providing fx to the banks) can be safely done at the central bank already in the short term," Balog said in a speech broadcast on the Internet. He said that for this commercial banks should reduce their short-term external exposure to some extent.