By Margit Feher
BUDAPEST--A Hungarian supreme court ruling last week on
foreign-currency mortgages could hurt the financial position of
domestic banks as it raises the possibility that lenders will have
to make compensation payments to mortgage borrowers of about 11% of
the banking system's total capital, credit rating company Moody's
Investor Service said Monday.
Hungary's top court ruled last week that banks' unilateral
increases to foreign-currency mortgage interest rates were unfair
if the banks hadn't clearly stated in the contracts the possibility
of such changes and their effect on the borrowers' payment
obligations.
Banks' compensation payments to the borrowers in wake of that
ruling could amount to around 1 billion euros ($1.36 billion) in
total, Moody's said.
Among the Hungarian banks Moody's rates for their credit
quality, OTP Bank Nyrt. (OTP.BU), mortgage bank FHB Nyrt., Erste
Bank Hungary Zrt., owned by Austria's Erste Group Bank AG (EBS.VI),
and K&H Bank Zrt., a unit of Belgium's KBC Group NV (KBC.BT)
risk paying the largest amounts in compensation, it said.
Residential foreign-currency mortgages, predominantly
denominated in Swiss francs, comprise 26% of the Hungarian banking
system's total loans, Moody's noted.
"Although a comprehensive solution to the problem of
foreign-currency mortgages will impose considerable costs on banks,
it will also reduce the risks of continued punitive measures by the
government, and remove the moral hazard that has prompted many
borrowers to fall behind on their repayments in anticipation of
improved terms for their mortgages," Moody's senior credit officer
Simone Zampa and senior analyst Armen Dallakyan said.
Non-performing loans are on a steady rise, they amounted to 24%
of the banks' foreign-currency mortgage portfolio at the end of
March, Moody's said.
Write to Margit Feher at margit.feher@wsj.com