rfmcdonald | [LINK] "Hungarian Franc-Loan Fix Provides Cautionary Tale" (Reply)

Bloomberg's Zoltan Simon notes that the surging value of the Swiss franc has left many central European countries, with large numbers of homeowners having mortgages taken out in the newly-strong currency, trying to figure out how to learn from Hungary's earlier experience.

Governments from Poland to Croatia are under pressure to mimic Hungary’s help for eastern European borrowers with $40 billion in Swiss-franc loans, without repeating the same mistakes.

Romania is considering a proposal to convert franc loans at a discounted rate while Croatia moved to force banks to take exchange-rate losses for the next year. Poland, for now, isn’t considering emulating Hungary’s full-conversion of franc mortgages. Leaders in all three nations face elections in the next two years.

As countries in the European Union’s east weigh steps to help about 800,000 borrowers, Hungarian Prime Minister Viktor Orban’s five-year fight to root out foreign-currency loans is serving as both a model and a cautionary tale for policy makers. Orban’s measures weakened the forint and curtailed lending before he moved to convert all foreign-currency mortgages in November, ahead of the franc’s surge last week.

“The Hungarian lesson should raise some red flags,” Viktor Szabo, who helps oversee $12 billion in emerging-market debt at Aberdeen Asset Management Plc, said by phone from London on Tuesday. “While there may be valuable lessons in there, a bank-sector shock similar to Hungary’s may jeopardize growth in the region.”