By Margit Feher

BUDAPEST--The issue of foreign-currency loan contracts in Hungary took another turn Friday after the government asked the country's Constitutional Court to review whether it has the legal right to intervene and change the terms of the contracts.

The governing Fidesz party of Prime Minister Viktor Orban has asked the Constitutional Court to examine the issue as it seeks to ease the burden of households with foreign-currency loans, mostly mortgages, before parliamentary elections next year.

Many Hungarians took out mortgages denominated in Swiss francs or euros at a time when they were cheaper than local-currency loans. The financial crisis has weakened the forint to such degree since then that the borrowers have suffered a massive spike in their repayment costs.

"If these changes take on a social dimension, affecting a large number of contracts, the changes in the circumstances may require action by the state," the government said in its submission to the court, outlining a precedent the court made in 1991 which allows it to intervene in a contract dispute under exceptional circumstances.

Mr. Orban has previously said that the foreign-currency loans are a faulty product and that the banks and not the borrowers should bear the losses.

Such a move would be a negative for Hungary's banking sector since all large banks had provided such loans and could face steep losses. Major banks include market-leader OTP Bank Nyrt. (OTP.BU), as well as foreign-owned banks such as Austria's Erste Group Bank AG (EBS.VI), Raiffeisen Bank International AG (RBI.VI), Italy's Intesa San Paolo SpA (ISP.MI), UniCredit SpA (UCG.MI), and Belgium's KBC Group N.V. (KBC.BT).

The government also wants the court to review whether the banks have the right to pass on higher costs to borrowers due to the devaluation of the forint.

The constitution states that "Hungary ensures the conditions of fair competition in the economy. Hungary takes action against abuses of dominant positions and protects the rights of consumers," the government pointed out in its submission to the Constitution Court.

Write to Margit Feher at margit.feher@wsj.com

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