Non-resident foreign currency debtors carry an average of 30 percent more debt than their borrowed real estate, according to the National Bank of Hungary (MNB). So some of the debt would have to be forgiven, but it could only come after paying the reduced installments properly – reports Good Finance.
Extending the exchange rate
Barrier and limiting the bank’s dominant position can help foreign currency borrowers who pay their installments properly, according to a compilation prepared by the Internet portal.
According to the Internet newspaper, central bank experts also include in the Financial Stability Report what exactly they mean by these measures. Unilateral interest rate increases and the exchange rate margin were valued as the application of dominance.
According to the central bank
The dominant position could be limited by transparent pricing (a fixed premium over the reference rate) or a fixed interest rate for a minimum of five years. (New mortgages can only be priced this way for years.)
According to the central bank’s report, the risk of a further decline in willingness to pay may persist until the issue of foreign currency loans is finally resolved – read an article on Good Finance.
The MNB’s experts on the exchange rate barrier believe that broadening the option to borrowers would significantly reduce credit risks. In the opinion of the MNB, a prolonged preferential repayment up to the end of the term, or a partial waiver of the principal between the market and the preferential exchange rate, would represent a manageable expense that would be prolonged.
They note that the burden-sharing should take into account that if the bank were to have to pay the capital, it would have to set up a provision for all expected losses according to accounting rules.
In the case of non-performing foreign currency-denominated mortgages, according to the report, the outstanding debt is on average more than 30 percent higher than the value of the collateral.
They also state that there is debt cancellation coverage
However, they also state that there is debt cancellation coverage, as the debt reduced by the provisions already made is on average only 80 percent of the estimated value of the property. According to the MNB, banks are able to sell real estate for half the value of real estate.
The MNB’s experts concluded that restoring solvency and willingness would be the most appropriate. This could be achieved through a more substantial partial debt write-off at the individual level following the restructuring, but the debtor would only actually receive the reduced installments properly.
They specifically emphasize that the problem should be treated the same in the case of defaulting and performing foreign currency debtors. Intervening only with non-performers would reduce their willingness to pay and justify those who had previously stopped paying, according to Good Finance (MTI).