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