How Does Hungary Deal With Non-Performing FX-Denominated Loans?

Since 2010, the Hungarian government has aimed at the extinction of FX-denominated loans.

The Situation in Hungary

For the past few years, Hungarian banks have struggled with rising non-performing loan (NPL) rates in both the retail and commercial sectors. The effect of the crisis on the NPL rates was exaggerated by the fact that FX-denominated loans (ie, loan or leasing contracts that administer the debt in foreign currency but the actual drawdown and repayment are made in forints) became very popular during the pre-crisis area. Such FX-denominated loans became extremely hard to service for Hungarian families and SMEs when the crisis hit the Hungarian economy and the exchange rates of CHF, EUR and JPY launched skyward. In turn, the Hungarian government launched different programmes to make FX-denominated loans go extinct.