Azernews.Az

By Bloomberg

Hungary's top court upheld a law declaring unilateral bank fees on consumer loans as "unfair,'' according to a person with knowledge of the matter. Banks must refund $4.1 billion, according to government estimates.

A majority of Constitutional Court justices voted that the law is constitutional, the person, who asked not to be named because the information isn't public, said today. The court may publish its decision as soon as next week, the person said. Newspaper Magyar Nemzet was first to report on the ruling today.

Prime Minister Viktor Orban has vowed to "hold banks to account" for lending practices and for their role in spreading foreign-currency loans that soured after the 2008 global credit crisis. The government also plans to phase out $14 billion in mostly Swiss-franc denominated mortgages next year and impose restrictions on household lending from 2016 under a new "fair banking" law aimed at protecting consumers.

OTP Bank Nyrt., Hungary's largest lender, has lost 7.7 percent since July 4, when parliament approved the refund bill, compared with a 7.5 percent decline in the benchmark BUX index in the same period. OTP rose 0.8 percent today to 3,980 forint by 9:25 a.m. in Budapest. OTP competes in Hungary mostly with foreign lenders including Erste Group Bank AG, Raiffeisen Bank International AG, UniCredit SpA, Intesa SanPaolo SpA and KBC Groep NV.

'Unfair' Practice

Orban's Fidesz party has won three elections this year on a campaign that included allegations banks were guilty for spreading foreign-currency loans that led to wide-scale default.

Parliament, where Orban's ruling coalition has a two-thirds majority, passed a law in July forcing lenders to retroactively refund consumers for "unfair" lending practices going back as long as a decade. The practices include interest-rate increases and the use of exchange-rate margins on foreign-currency loans.

Banks have turned to courts to prove the fairness of their policies. Lower court judges referred four cases, including OTP's, for constitutional review, saying the law violated legal protection against retroactive legislation, undermined the rule of law, and unduly limited bank's ability to prove their cases.

The court's secretary-general, Botond Bitskey, declined to say by phone whether the judges had held a vote and said they have yet to write opinions and sign the ruling to make it official.

Retroactive Effect

The retroactive effect of the law "does not seem to be in line" with European Union rules and may have "spillover effects" on Hungary's economy, European Central Bank President Mario Draghi said in an opinion published in August.

The National Bank of Hungary, seeking to protect the forint, said it would make 3 billion euros ($3.85 billion) of its reserves available to lenders for the refunds. Yesterday, it said it would make an addition 9 billion euros available for the conversion of foreign-currency mortgages to forint.

Orban's ruling party yesterday discussed the conversion of $14.3 billion of foreign-currency mortgages, mostly denominated in Swiss francs. The party mandated the government to phase out such loans by the end of next year, ruling party parliamentary leader Antal Rogan told reporters yesterday.