Phasing Out Household Foreign Currency Loans : Schedule and Framework

Due to a peculiar constellation of demand, supply and institutional factors, Hungary faced the 2008 economic crisis with a massive portfolio of household foreign currency loans. After several measures to mitigate the exposure of households, the permanent solution of phasing out foreign currency and foreign currency based mortgage loans was achieved in 2014. In this article, we argue that at the time of conversion the legal and economic conditions reduced the unavoidable risks to a reasonable level, where the expected social and welfare benefits of the conversion offset such risks. The implementation of the conversion was made possible by the coordinated foreign currency sale programme of the MNB. Under the programme, the MNB provided a total amount of EUR 9.1 billion to the banking system in a coordinated fashion, while promoting banks' cooperation and ensuring central bank FX reserve adequacy. Owing to the central bank's programme, the conversion took place without significant impact on the forint exchange rate