EN ECB-PUBLIC 
 
 
OPINION OF THE EUROPEAN CENTRAL BANK 
of 5 April 2012 
on foreign currency mortgages and r esidential property loan agreements 
(CON/2012/27) 
 Introduction and legal basis
 
On 12 March 2012, the European Central Bank (ECB) r eceived a request from the Hungarian Ministry for 
the National Economy for an opinion on a draft law m odifying the rescue scheme for foreign exchange 
borrowers (hereinafter the ‘draft law’).  
The ECB’s competence to deliver an  opinion is based on Articles 127(4) and 282(5) of the Treaty on the 
Functioning of the European Union and the sixth indent  of Article 2(1) of Council Decision 98/415/EC of 
29 June 1998 on the consultation of the European Ce ntral Bank by national authorities regarding draft 
legislative provisions1, as the draft law relates to rules applicable  to financial institutions insofar as they 
materially influence the stability of financial ins titutions and markets. In accordance with the first 
sentence of Article 17.5 of the Rules of Procedure of the European Central Bank, the Governing Council 
has adopted this opinion. 
 1.  Purpose of the draft law 
The draft law amends Law LXXV of 2011 fixing th e exchange rates for the repayment of foreign 
currency loans and the administration of th e enforced sale of residential property
2 (hereinafter the Law) 
that, in July 2011, introduced a scheme to fix loan instalments on a temporary basis by collecting the 
additional debt arising from the difference between th e actual and fixed exchange rates on a separate loan 
account, which was to be repaid after 36 months. The ECB was not consulted on this Law. On 10 October 
2011, the Law was amended to allow eligible debtors to  repay mortgages early at exchange rates fixed by 
the Government, implying a significant reduction in the principle amount of the mortgages. The early repayment scheme expired on 29 February 2012. 
On 30 December 2011, the relief scheme was again am ended by inserting an article into a legal act 
regulating a materially different subject matter,  Law CCIX of 2011 on water utilities. This amendment 
provided relief for holders of foreign currency mo rtgages who on 30 September 2011 had been in default 
                                                 
1  OJ L 189, 3.7.1998, p. 42. 
2  According to Law No LXXV of 2011, debtors may opt for a 36 month application of a fixed exchange rate of forint 
180/1 Swiss franc, forint 250/1 euro and forint 200/100 yen. Du ring that period, they will receive a credit line to 
accumulate the difference between the fixed and actual exchange rates. After the period of application of the fixed 
exchange rates, debtors mu st repay the accumulated difference on a monthly basis. Law No  LXXV of 2011 also 
introduces a quota for the forced sale of properties 
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2 for more than 90 days with an arrear amounting at least to the Hungarian minimum wage. The debtor 
could request conversion into a mortgage denominated in forint. In addition, 25% of the clients’ debt 
outstanding on 15 May 2012 would be cancelled, provide d the total market value of the real estate serving 
as collateral did not exceed HUF 20 million at the time of contracting the foreign currency mortgage. The 
ECB was not consulted on this amendment. 
The latest draft amendments to the Law aim to make  the initial scheme more attractive to debtors unable 
to repay their foreign currency loans under it. 
The draft law also extends the scope of debts qualif ying as a foreign currency loan to debts under a 
financial leasing contract. Furtherm ore, it extends the scope of the exchange rate barrier scheme to 
debtors with loans up to HUF 20 million. It also ex tends the scheme’s application period from 36 to 60 
months and introduces the concepts of ‘highest ex change rate’ and ‘exempte d part of the debt’. 
The draft law provides for the State reduction of the scheme’s financial burden on financial institutions. It 
specifies the highest exchange rate in 270 forint/S wiss franc, 340 forint/euro and 3.3 forint/yen, beyond 
which the State undertakes to reimburse a posteriori  on a quarterly basis the full amount of debt resulting 
from exchange rates in excess of th e highest exchange rate. The concept of ‘exempted part of the debt’ 
covers any fees and interest on the loan if the exch ange rate exceeds the fixed exchange rate of 180 
forint/Swiss franc, 250 forint/euro and 2.5 forint/yen. 
Furthermore, the State undertakes to reimburse the financial institutions a posteriori  on a quarterly basis 
half of the exempted part of the debt that cannot be enforced in a foreclosure procedure. Financial 
institutions are prohibited from charging interest on the exempted part of the debt and the part of the 
instalment obligation that resulted from the exchange rate exceeding the highest exchange rate fixed by 
the draft law. Finally, the draft law provides for an additional interest subsidy for public sector 
employees. 
On 14 March 2012, the Minister for the National Econom y tabled six amendments to the draft law before 
the final parliamentary vote, including amendments T/5842/20 to 25. Contrary to the 30 December 2011 version of the draft law, amendment T/5842/25 extends  the scheme to debtors with loans drawn against 
real estate collateral of up to HUF 30 million, co mpared with the cap on the initial amount of the 
mortgage of HUF 20 million. At the same time, ame ndment T/5842/23 inserts a new Article 10/A(1) into 
the Law providing relief for foreign currency  debtors in default for more than 90 days at 30 September 
2011 for at least an amount corresponding to the mi nimum wage. These debtors may request conversion 
into a forint mortgage loan and 25% of their debt outstanding on 15 May 2012 may be cancelled, 
provided that the total market value of the real estate serving as collateral did not exceed HUF 20 million 
at the time of contracting the foreign currency mortgage.  
Amendment T/5842/24 complements Article 3(4) of th e Law by introducing the following application 
schedule for eligible debtors to apply for c onversion of their foreign currency loans:  
- from the Law’s entry into fo rce: public sector employees, 
- from 1 June 2012: other foreign currency mortgage holders,  
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3 - from 1 September 2012: other foreign currency mo rtgage debtors with a non-specified purpose 
loan. 
The ECB was not consulted on these amendments to the draft law, which were incorporated in the final 
version adopted by the Parliament on 19 March 2012. Since the final adopted law had not been published 
by 26 March 2012, the ECB’s opinion is based on th e draft law sent by the consulting authority, 
supplemented by amendments from the Hunga rian Parliament’s on-line database. 
 2. The appropriate time to consult the ECB The consulting authority submitted the draft law to the ECB on 12 March 2012, in a letter dated 28 
February 2012, without requesting an urgent procedur e or setting an express time limit for the submission 
of the ECB’s opinion. On 19 March 2012, the Hungaria n Parliament adopted an amended version of the 
draft law. 
The ECB again reiterates its position that even cases of particular urgency do not relieve national 
authorities from their duty to consult the ECB and to a llow sufficient time to ta ke into account its views 
in accordance with Decision 98/415/EC. Any substan tive amendments to the draft law have to be 
submitted to the ECB to allow it to adopt its opinion on the most recent text. Furthermore, the process of adoption of the draft law should have been susp ended. The ECB’s observations on the provisions on 
which it was consulted do not eliminate the breach of  the consultation obligation. The ECB expects the 
Ministry for the National Economy to give due consid eration to honouring its obligation to consult the 
ECB in the future. 
 3. Financial stability and risks asso ciated with foreign currency loans   
3.1 The ECB has pointed out on several occasions th e risks associated with foreign currency loans
3. In 
particular, they represent a major risk to financia l stability in several Member States in central and 
eastern Europe, particularly in Hungary where th e share of foreign currency loans is among the 
highest in the Union. The ECB points in this resp ect to the analysis of such risks made by the 
European Systemic Risk Board (ESRB) and to the ESRB recommendations for addressing such 
risks contained in Recommendation ESRB/2011/ 1 of 21 September 2011 on lending in foreign 
currencies4. 
3.2 While noting the importance of complying with the rule of law and ensuring legal certainty, the 
ECB observes that the draft law is the latest effo rt by the Hungarian Government to provide relief 
for distressed foreign currency borrowers and thus ease the burden on the Hungarian economy.  
3.3 The ECB notes that the Hungarian authorities have found a common position with the Hungarian 
Banking Association including, inter alia, on burd en sharing between banks, the Government and 
holders of foreign currency loans. This is a welcome development from a financial stability 
                                                 
3  See in particular the ECB Financia l Stability Review of June 2010 and Op inion CON/2011/87. All ECB documents are 
available on its  website at www.ecb.europa.eu.  
4  OJ C 342, 22.11.2011, p. 1. 
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4 perspective. While previous amendments to th e Law, especially those related to the early 
repayment of foreign currency loans, had a si gnificant negative impact on financial stability5, the 
current amendment may, in contrast, have a favour able impact on banks’ asset quality, at least in 
the short to medium term. However, the long-te rm implications of the scheme for borrowers’ 
financial position and banks’ asset quality will depend, among othe r things, on exchange rate 
movements during and after the period of exchange rate fixing. 
3.4 In addition, the ECB considers that, by allowing borrowers to service their debt for a period of 60 
months at fixed exchange rates substantially below current market rates, the Law may weaken 
customers’ risk awareness during the fixation peri od. This may represent a potential risk for the 
banking system’s stability when the scheme expires a nd the instalments to be paid by clients will 
increase to service the debt accumulated on the separat e loan accounts. It is therefore important for 
banks and authorities to ensure that clients are fully aware of the possible implications of a potentially sizeable increase in their monthly instal ments at the end of their participation in the 
scheme. In this regard, the Hungarian authorities could consider appropriate measures to enhance 
clients’ risk awareness and to encourage them to build up sufficient financial reserves that could be 
used to service their debt in the future. 
3.5 The ECB reiterates its earlier concerns as regards the potential adverse effects of Law LXXV of 
2011 and its amendments, with possible negative imp lications for the long-run growth prospects of 
the economy. 
3.6 Overall, the ECB calls for an update of the an alysis of the impact of Law LXXV of 2011 and its 
amendments on public finances, the financial system and the real economy including possible 
cross-border effects.  
3.7 Finally, the ECB calls for further dialogue be tween the authorities and financial institutions and 
proposes in this regard due consideration of the interests of the general public, including financial 
institutions and the authorities responsible for en suring the stability of the financial system in 
Hungary, in the process of developing secondary legi slation, as referred to in Article 7 amending 
Article 11 of Law LXXV of 2011. 
 This opinion will be published on the ECB’s website.    Done at Frankfurt am Main, 5 April 2012. 
[signed] 
The President of the ECB 
Mario DRAGHI 
                                                 
5  See CON/2011/87.