Hungarian banks say lending rate cap extension ‘distorts the market’

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BUDAPEST, October 28 (Reuters)The Hungarian government’s extension of a program that caps variable-rate loan rates to include small and medium-sized businesses “distorts market conditions” and will force banks to limit lending, the Association of country’s banks.

Prime Minister Viktor Orban’s government, which is struggling to rein in inflation which topped 20% in September and continues to rise, said on October 22 that it would include variable rate business loans in a program aimed at to cap lending rates and try to avoid another recession. year.

Corporate loan rates will be capped at the June 28 3-month interbank rate, which was 7.77%, down from the current rate of 16.69%, after an emergency rate hike by the central bank on June 14. October, said the Minister of the Economy. Development Marton Nagy said, adding that banks will pay the costs of the measure.

“This current high level of burden on banks and the uncertainty due to retroactive intervention in contracts has now reached a critical level which will inevitably lead to a significant decline in retail and corporate lending activity,” he said. the association said in a statement.

The Banking Association called for targeted measures and said the system of capping mortgage rates and business loan rates “was neither proportionate nor targeted”.

In May, the government announced windfall taxes of 800 billion forints ($1.93 billion) on what it called “extra profits” made by banks, energy companies and other businesses. These taxes, designed to fill a budget shortfall, hit Budapest stocks and rattled investors.

($1 = 413.47 forints)

(Reporting by Krisztina Than; editing by Barbara Lewis)

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Laura T. Thrasher