Hungary May Change Forex Loans Retroactively, Court Rules

Hungary’s top court Monday ruled that lawmakers can adopt legislation allowing retroactive changes to foreign-currency loan contracts, but the changes must take into account the interests of both the borrowers and lenders, The Wall Street Journal Emerging Europe Real Time blog reported. Foreign-currency loans–mainly mortgages tied to the Swiss franc–were hugely popular before the financial crisis because they were much cheaper to service than local-currency loans. They have become a major political issue since then due to the sharp depreciation of the Hungarian forint against the Swiss franc. There are about half a million existing foreign-currency mortgage contracts valued at 3.5 trillion forints ($15.59 billion), according to the central bank. The governing Fidesz party government, which looks set to win a second consecutive term at parliamentary elections in April, turned to the Constitutional Court at the end of November to see how much it could amend the contracts retroactively to the benefit of borrowers and at the cost of lenders. The government had claimed banks had abused their dominant position when raising their fees and repayment amounts during the financial crisis and because of the weaker forint, and had set exchange-rate spread levels and contract conditions in a unilateral way, breaching customers’ constitutional rights. Read more. (Subscription required.)