BUDAPEST, July 6 (Reuters) - Hungary's FHB Bank will limit the conversion rate of Swiss franc mortgages at 205 forints per franc for the next three months to protect borrowers from market volatility, the bank said on Tuesday.
The bank said the preferential conversion rate, effective from July 6, would be available to borrowers not running late on repayments and if the forint firmed below 205 per franc the bank would automatically calculate instalments at the lower rate.
However, FHB said the cheaper rate would be suspended if the central bank's average exchange rate exceeds 215 forints per Swiss franc on average in the preceding 30 days.
The announcement comes after Hungary's biggest bank, OTP, decided to cut interest rates on Swiss franc and Japanese yen-denominated loans as of June to reduce monthly repayments boosted by a weak forint.
Swiss franc loans make up about 44 percent of Hungary's entire household debt stock -- and 55 percent of all mortgages - and the franc is now trading near record levels at 213 versus the forint, far above 150-160 where most loans were issued.
Hungary's new centre-right government, which wants to launch a mortgage relief fund next year using bank capital and state guarantees to help troubled borrowers, has proposed to ban new mortgage lending in foreign currencies to mitigate risks.
The new head of financial market regulator PSZAF told Reuters on Monday the authority would propose legislation that would lower the conversion costs of foreign currency for hundreds of thousands of borrowers.
At 0858 GMT, FHB shares traded 9.4 percent higher at 1,132 forints on the Budapest Stock Exchange, boosted by Monday's announcement that it would use 1.8 million of its own shares to pay for the Hungarian operations of German insurer Allianz, analysts said. ($1=196.58 Hungarian Forint) (Reporting by Gergely Szakacs and Marton Dunai; Editing by Jon Loades-Carter)