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11/08/2010

Melinda Nagy, a Hungarian special education teacher who knows little about financial markets, has started to lose sleep over exchange rates.
 
Nagy's payments on her Swiss-franc-denominated mortgage almost doubled after the Hungarian forint dropped 35 per cent since 2008 against the Alpine nation's currency, forcing her to clean houses and work at a chicken ranch to avoid foreclosure.
 
"I'd rather burn my house down than give it back to the bank," said Nagy, who lives in the eastern Hungarian city of Hatvan. "What's the difference if I go to jail or become homeless?"
 
The amount of franc-denominated mortgages in Hungary surged to 2.2 trillion forint (HK$80.1 billion) in May from 133.8 billion forint at the start of 2005, according to central bank data. Non-performing loans at local lenders such as OTP Bank, Erste Group Bank and Foldhitel es Jelzalogbank might rise to as much as 10 per cent of total loans by the end of the year, Tamas Erdei, president of the Budapest-based Banking Association, said.
 
About 5.4 trillion forint, or two-thirds of overall household credit, is denominated in foreign currencies. Of that, 82 per cent are in francs. "We should have shouted louder, much louder," central bank president Andras Simor said last month in Budapest. "We still haven't found a way to stop people from buying flat-screen TVs from foreign-currency credit."
 
Household debt repayments have increased across Hungary as the franc rose to a record 219 per forint on July 1. The forint slid almost 4 per cent in June after Lajos Kosa, a senior politician in the ruling Fidesz party, said Hungary had a "slim chance" of avoiding a Greece-like crisis.
 
The Association of Distressed Borrowers in Budapest received about 15,000 calls a month, 10 times the amount a few years ago, chairwoman Mariann Lenard said. "Middle-class people with decent salaries are calling by the thousands," Lenard said. "There are two to three million people out there who have no idea how they'll make the next payment."
 
The government declared a moratorium on foreclosures until April 15, 2011, preventing banks from evicting non-paying debtors. The Cabinet is planning a national asset management company that would pool bad loans and convert borrowers into renters with the government as the new landlord. Details of the programme are expected by the end of this month. There were more than two million overdue household loans at the end of March, including 100,000 mortgages.

Bloomberg
 
This article can be found on South China Morning Post, Wednesday, August 11, 2010



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