Hungary passes new law helping borrowers, hitting banks

 Hungary's parliament adopted a law on Wednesday compelling banks to pay compensation of about 3.2 billion euros ($4.1 billion) to borrowers hit by past interest rate hikes on loans deemed unfair by authorities, AFP reports.

The legislation was backed by 167 lawmakers in the 199-member parliament.

Hungary's Prime Minister Viktor Orban, 51, whose right-wing Fidesz party was re-elected in April, has been criticised for unorthodox economic policies that have made foreign investors nervous.

Some of the compensation relates to large volumes of loans denominated in foreign currencies, mostly in Swiss francs, sold by banks to Hungarians before the 2008-9 financial crisis pushed repayment rates up sharply.

Fidesz' parliamentary head, Antal Rogan, said recently when the bill was presented: "The Hungarian banking sector will have to pay back 1,000 billion forints (3.2 billion euros, $4.1 billion) to families."

The repayment rates on loans will be recalculated, meaning that on average borrowers will pay 25-30 percent less, according to the government's calculations.

The new bill also means commercial banks will be banned from raising borrowing rates, fees or costs on any outstanding loans until April 30, 2016.

Hungary's central bank said on Wednesday it would provide 3.0 billion euros of the country's foreign exchange reserves to help banks meet the cost of the compensation and avoid weakening the forint.

Banks in Hungary, many foreign-owned, have warned the new legislation could hit economic growth.

On Tuesday, the Hungarian Banking Association said the retrospective measure undermined investor confidence. The European Central Bank had noted in July that the retroactive effect of the legislation could infringe EU law.