Banks protest the central bank's move to rewrite the past

HUNGARY - In Brief 11 Aug 2014 by Istvan Racz

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Hungary's banking association says that the MNB's recently issued guideline on how banks should calculate the amount of refunds to household credit clients, on account of illegally charging a currency conversion spread under FX loan contracts where no actual currency conversion was involved, is in conflict with the country's Civil Code and other pieces of legislation. The problem with the MNB's methodology is that it requires banks to take into account any refundable amounts as early repayments occurring at the time when they were illegally collected by the bank. This method reduces the capital outstanding under the loan contract, requiring banks to lessen the amounts due as interest and fees and return the to borrowers the difference between the actually collected interest plus fees and the recalculated amounts of those. Banks claim that the legal solution would be to require a refund of the illegally collected currency spreads with interest, leaving the outstanding amount of capital unaffected. The difference between the two ways of calculation is roughly HUF200bn (0.66% of GDP). Should the central bank issue a similar guideline on unilateral contract amendments as well, the total amount of the compensations payable by banks to their household borrowers for unfair lending practices in previous years could be around HUF800bn, rather than the HUF600bn calculated by the method preferred by banks. According to the recently approved parliamentary act on the compensation issue, banks are required to calculate the amount of conversion spreads by late October. The MNB guideline is a recommendation, so it is not legally binding, but the MNB, as the financial supervisor, will ...