EN  ECB -PUBLIC  
 
OPINION OF THE EUROPEAN CENTRAL BANK  
of 16 December  2014  
on the conversion of foreign exchange loans  
(CON/2014/ 87) 
 
Introduction and legal basis  
On 17 November 2014, the European Central Bank (ECB) received a request from the Hungarian 
Ministry of the Nati onal Economy (hereinafter ‘the consulting authority’) for an opinion on a draft law 
laying down the rules applicable to the conversion of foreign exchange loan contracts (hereinafter the 
‘draft law’).  
The draft law was amended subsequent to the receipt by the ECB of the request for an opinion1, but the 
ECB was not notified of these later amendments. The scope of the ECB’s opinion is limited to the draft law as it was submitted by the consulting authority, without the later amendments. Furthermore, the draft  
law was adopted by the Hungarian Parliament on 25 November  2014.  
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 Decis ion 98/415/EC
2, as 
the draft law relates to rules applicable to financial institutions insofar as they materially influence the stability of financial institutions 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
 Background and p urpose of the draft law 
1.1 This draft law  is one of  a series of legislative measures3 introduced by the Hungarian government 
in order to deal with  foreign currency consumer loans . Unlike  previous legislative measures of this 
nature,  the draft law should not be considered as having been introduced in consequence of a  
particular ruling of the Hungarian Supreme Court4. 
                                                 
1  See amending proposal T/2055/3 . This proposal, inter alia, changes some basic elements of the draft law, such as the rules 
applicable to the interest rate premium and the loan contracts of customers participating in the exchange rate cap scheme.  
2  Council Decision 98/415/EC of 29 June 1998 on the consul tation of the European Central Bank by national authorities 
regarding draft legislative provisions (OJ L 189, 3.7.1998, p. 42).  
3  Law XXXVIII of 2014 on measures to address the Supreme Court’s decision on consumer loan contracts published in 
Magyar Közlöny 98/2014 on 18 July 2014, see Opinion CON/2014/59;  Law XL of 2014 on the rules of settlement related to 
such contracts published in Magyar Közlöny 137/2014 on 6 October 2014, see Opinion CON/2014/72;  and Law LXXVIII of 
2014 concerning the general terms and conditions of consumer loan contracts published in Magyar Közlöny 168/2014 on 5. 
December 2014, see Opinion CON/2014/ 85. All ECB opinions are available on the ECB’s website at www.ecb.europa.eu.  
4  Uniform Decision 2/2014 of the Supreme Court of 16 June 2014. See also Decision 6/2013 of the Supreme Court of 
16 December 2013.  
ECB -PUBLIC  
2 1.2 Under the  draft law , foreign exchange and foreign exchange- based loan contracts  (hereinafter 
‘FX loans’) will be converted in to forint , effective as of 1 February 2015, at a specific  exchange rate  
set by the Magyar Nemzeti Bank (MNB) . The conversion applies to all consumer loan contracts , 
includ ing financial lease contracts denominated or based in foreign currenc ies, which  were 
concluded between 1 May 2004 and 19 July 2014 . 
1.3 The interest rate applicable to the converted loans will be linked to the three -month Budapest 
Interbank Offered Rate (B UBOR). The interest rate premium must be the same as  the interest rate 
premium applied to the original FX loan, provided that  this is not lower than 2 percentage points5. 
The draft law also introduces caps on the interest rate premium as follows: (a) the i nterest rate 
premium may not exceed 5.5 percentage points6 in the case of residential  mortgage loans ; and 
(b) the interest rate premium may not exceed 7  percentage points7 for home equity loans.  
 The interest rate premium caps are binding and,  if a bank charges  an administration fee, the 
interest rate premium is to  be reduced accordingly . Furthermore, t he final amount payable in 
interest may not exceed the interest payable on the original FX loan.  
1.4 The draft law sets the length of the interest rate perio d in the case of loans with fixed interest rates , 
and the interest rate premium period in the case of loans with interest tied to a reference rate , as 
follows: (a) five  years if the loan maturity is greater than 16 years; (b) four years if the loan maturit y 
is between nine years and 16 years; and (c) three years if the loan maturity  is between three years  
and nine years.  Changes to the i nterest rate may be made only  in line with the interest rate 
premium alteration indicators approved by the MNB. Financial institutions may raise the applicable 
fees once a year  only, and by no more than the previous year’s annual rate of inflation as 
measured by the consumer price index and published by the Hungarian Central Statistical Office.  
The earliest date from which th is increase  can take place is 1 April 2016.  
1.5 Financial institutions are obliged to notify their customers  about the conversion at the same time as 
they are notifi ed of the settlement. The draft law also sets out the conditions under which 
consumer s may, within 30 days of  receiving notification that conversion of their FX loan s is to take 
place,  opt out of such conversion . The financial institutions  concerned will need to examine 
whether the relevant  conditions are met within 30 days of receiving an opt -out request. For such a 
request to be met , one of the following conditions  must be fulfilled : (a) the customer’s  monthly 
income must be in the same  foreign currency and must  exceed the amount repayable ; 
(b) monthly  repayments  must be no higher than 10% of t he monthly income of the customer ; 
(c) the mortgage loan must be due to expire on 31 December 2015 at the latest; or (d) despite the 
fixed interest rate premium , the interest rate calculated in accordance with  the draft law is higher 
than the interest rate  applicable to the original FX loan or the rate  applicable  prior to 19 July 2014.  
                                                 
5   Changed to 1  percentage point  by amending proposal T/2055/3.  
6  Changed to 4.5 percentage points by amending proposal T/2055/3.  
7  Changed to 6.5 percentage points by amending proposal T/2055/3.  
ECB -PUBLIC  
3 1.6 The draft law also provides  that consumers who do not favour  these conditions may repay  their 
loans and terminate their contracts in order to take out more favourable loan s for refinancing 
purposes.  
1.7 On 10 November 2014, the MNB offered euro liquidity  totalling EUR  7.83 billion to commercial 
banks through tenders . This was done on the basis that this  conversion would occur and in 
anticipati on of  that the envisaged repay ment of foreign currency liabilities would result in an 
increased demand for foreign exchange liquidity by financial institutions which, if settled on the 
foreign exchange market, could trigger  disturbances . According to the MNB, this measure will 
counteract pressures on the exchange rate for forint by providing financial institutions with euro 
liquidity from its own foreign exchange reserves, thereby facilitating  the rapid and efficient  
conversion of FX loans. According to a n MNB  statement issued on 10 Nov ember 2014, the total 
hedging need of commercial banks in relation to the FX loans conversion would be around 
EUR  8 billion8. Subsequently,  the tender s referred to above covered almost  the entire estimated 
demand for foreign exchange liquidity . 
 
2 General observation s 
The appropriate time to consult the ECB  
The draft law was adopted  by the Hungarian Parliament on 25 November 20149, shortly after the ECB 
was consulted and before the ECB could adopt its opinion. As a consequence, the Parliament could not 
take the ECB’s views into account before adopting the draft law.  
The consulting authority did not indicate to the ECB that the opinion was urgent or that the draft law was 
to be adopted by the Hungarian Parliament under an urgency procedure. Moreover, due to amendments 
made to the draft law between the date of the consultation request and the date of adoption, which were 
not communicated to the ECB, the law as adopted differs substantially from the draft law submitted to the 
ECB.  
The Hungarian authorities have again failed to comply properly with their duty to consult the ECB. The 
adoption of the draft law, as amended, does not relieve the authorities of their duty to give due consideration to this opinion, in particular with regard to the application and interp retation of the draft law 
as adopted, as well as any future amendments thereto.  
The ECB would like to emphasise that, even in cases of particular urgency, or where the legislative 
process has reached an advanced stage, the national authorities are not reli eved of their duty to consult 
the ECB. This should occur at an appropriate stage in the legislative process that allows suff icient time 
for: (a) the ECB to examine the draft legislative provisions and adopt its opinion in all required language 
versions; an d (b) the national authorities to take into account the ECB’s views in accordance with 
                                                 
8  See www.mnb.hu.  
9  See Law LXXVII of 2014, published in Magyar Közlöny 168/2014 on 5 December 2014.  
ECB -PUBLIC  
4 Decision 98/415/EC. The ECB would therefore appreciate it if, in future, the consulting authority would 
honour its obligation to consult the ECB in accordance with Decis ion 98/415/EC.  
 
3. Specific observation s 
3.1 From a financial stability perspective, the conversion of FX loans should greatly reduce or even 
eliminate currency mismatches in households’ balance sheets, which is expected to contribute to 
reducing the credi t risk  of banks  in the longer term.  The ECB  appreciates  that the method for 
calculating the exchange rate to be used for the conversion of the loans in question was set with 
the intention  of avoiding an additional  significant burden on the banking sector . The ECB , 
moreover,  takes note of the measures  taken by the MNB , in agreement with the banks , in order to 
ensure an orderly conversion of FX loans.  
3.2 On the other hand , the interest rate premium cap could have a negative effect on the future 
profitability  of banks , thereby  adding to the significant strains already faced by  the banking sector . 
These strains  have resulted, inter alia,  from the measures relating to the settlement of FX loans10. 
It should also be noted that the conversion will lead to a once-off increase in operational costs for 
banks in Hungary.  
3.3 As regards  the longer -term effects on financial stability , the ECB continues to be of the opinion that , 
when introducing measures in relation to settling and converting FX loans, due consideration 
should always be given to  fair burden sharing between consumers , the financial institutions, the 
Hungarian G overnment and all  authorities responsible for ensuring the stability of the financial 
system in Hungary . This consideration should also include forei gn banking groups , whose entities 
manage around half of all banking assets in Hungary . As a result,  the measures affecting FX loans 
may also have significant cross -border spill-over effects on the consolidated profits and capital 
positions  of banking group s. In this regard, t he ECB wishes to remind the Hungarian authorities 
that, during  the past few years,  losses stemming from previous  government measures , including  
the bank levy, the financial transaction tax and the early repayment scheme for FX loans , were 
offset by capital injections from  foreign parent undertakings  to ensure the stable functioning of their 
subsidiaries . While this behaviour confirmed the parent banks’ longstanding  commitment to the 
financial sector  in Hungary , the possibility of longer -term negative effects on the Hungarian 
economy and financial markets , as a result of the legislative package refer red to in paragraph 1.1  
on top of the abov ementioned measures, cannot be excluded at this stage.  
                                                 
10  For more details on these measures  see Opinions CON/2014/59, CON/2014/72 and CON/2014/76.  
ECB -PUBLIC  
5 This would, in turn,  also adversely impact the overall macroeconomic and financial stability in Hungary.  
 
This opinion will be published on the ECB’s website.  
  
Done at Frankfurt am Main, 1 6 December  2014.  
 
[signed]   
The President of the ECB  
Mario DRAGHI