For more from the Reuters Central European Investment
Summit, click on:
http://www.reuters.com/summit/CentralEuropeanInvestment09?pid=500
By Boris Groendahl and Balazs Koranyi
VIENNA, Sept 29 (Reuters) - Hungary's central bank said on
Tuesday the country should consider imposing higher capital
requirements on foreign currency loans if banks fail to curb
them themselves, while the country's biggest bank said it was
unlikely to do so.
Vice-Governor Ferenc Karvalits told the Reuters Central
European Investment Summit on Tuesday the central bank had
suggested that Hungary's financial regulator PSZAF convince the
country's banks to rein in FX lending voluntarily.
"The central bank and the financial regulator declared that
if self-regulation does not take place or will not be
sufficient, we will think about direct regulation," Karvalits
told the summit.
"It is very tempting to identify FX lending as one of the
major causes of the problems in the region. This is indeed the
case for a large part of the financial stability risk."
His remarks echoed those by Austrian central bank governor
Ewald Nowotny at the Reuters Summit on Monday, who said such
loans had no place in lending to ordinary consumers.
But Hungary's biggest bank, OTP <OTPB.BU>, told the summit
that as long as Hungary was on track to catch up with western
Europe and join the euro currency eventually, there was nothing
wrong with lending in euros, including to households.
"As long as there's such a big difference between the euro
and the (forint) base rate, it doesn't make sense for a customer
to take a (forint) loan," OTP's new Chief Financial Office
Laszlo Bencsik said on Tuesday.
"I think if customers have a choice between (forint) and FX
loans and the difference remains so big, the rational choice is
to ask for FX, and we as banks have to give them what they ask
for," he said.
POPULAR
Borrowing in hard currencies allowed ordinary consumers in
countries like Poland, Hungary or the Baltic Sea states to avoid
punitive interest rates at home and remained a big driver of
overall loan growth after they joined the EU in 2004.
But such lending exposes borrowers to the risk that their
debt payments rise sharply if their local currency drops --
especially those who have no revenues in the foreign currency.
Banks then face an increased risk that such debt defaults.
It also undermines the central bank's monetary policy
because it allows customers to sidestep it.
Karvalits said that higher capital requirements were the
best market-oriented way of giving banks incentives to lend
responsibly.
"On the European level there were some discussions that
capital requirements can act to limit large exposures," he said.
"That would be the reasonable market-oriented solution."
However, Karvalits said the best way to rein in FX lending
was to remove the incentives that lead to it in the first place
-- the large difference between euro and forint interest rates,
which in turn was due to Hungary's high inflation.
"If there is not more than a 1, 1.5, or 2 percent difference
between euro and forint (rates), households will choose forint,"
Karvalits said. "If we succeed with the primary goal of price
stability, we (will) also reach a much more reasonable interest
level."
(Reporting by Boris Groendahl; editing by Patrick Graham)
