BUDAPEST, May 17 (Reuters) - Hungary's mortgage holders would not benefit from a potential conversion of foreign currency loans to forint-based ones, the chief executive of the country's largest lender OTP said.
Hungary's next government, to be formed later this month by the centre-right Fidesz party which won April elections, has said it might consider converting some troubled foreign currency loans to forint-based ones to eliminate currency risk.
Economy Minister designate Gyorgy Matolcsy has said foreign currency mortgages of troubled borrowers should be converted to forint-based loans with the help of the state. The conversion, however, would boost repayment obligations because of Hungary's higher interest rates, costing loan holders an annual 230 billion forints more than the current loan structure, OTP Bank Chairman and Chief Executive Sandor Csanyi told the news channel Hir TV. "Foreign currency loans cannot be converted into forint loans," Csanyi said late on Sunday. "However, troubled loan holders must be assisted, and the government and banks can cooperate on this." He added that loan holders would be able to tolerate a weaker forint, at around 285 to 290 to the euro versus the current levels around 275, and those weaker levels would benefit the economy as well, boosting exports and tempering the price advantage of imported goods.
Csanyi also said the key interest rate of the central bank, which is at a record low at 5.25 percent, is of secondary importance in boosting lending and economic growth.
"Access to external financing, and its price, will depend on what kind of fiscal and economic policies the next government will pursue," he said, adding that the current risk premium that retail clients pay because of Hungary's risk assessment is around 2 percentage points.
He also said that the entire role of the National Bank of Hungary must be reconsidered, because its current inflation targeting regime is too narrowly focused, which led to an exceedingly strong currency before the crisis, hurting the economy and exposing it to steeper currency swings.
"Fundamentally, the central bank's mandate must be modified," Csanyi said. "Preserving the forint's value cannot be the sole goal of the central bank. The central bank must cooperate with the government in the interest of economic development as well." (Reporting by Marton Dunai; Editing by Jon Loades-Carter)