Banks need to pay as Hungary expands lending rate cap scheme

BUDAPEST, Oct 22 (Reuters) – Hungary will include floating interest rates for small and medium-sized enterprises in a plan to limit lending rates and avoid recession, Economic Development Minister Marton Nagy said. loans, adding that banks could “easily” cover the cost of the measures.

With inflation over 20% and still rising and the economy slowing, Prime Minister Viktor Orbán’s government faces the challenge of curbing price growth while trying to avoid a recession. It already capped the price of fuel and basic food, as well as mortgage rates. Most households also have caps on their energy bills.

On Saturday, the government announced subsidies worth 150 billion forints ($362 million) for big companies investing in energy efficiency, and expanded a loan rate cap scheme.

Following the central bank’s emergency rate hike on October 14, commercial lending rates will be capped at the three-month interbank offered rate on June 28, or 7.77%, compared with the current rate of 16.69%, Nagy said. Valid until July 1, 2023, similar to the existing cap on home mortgage rates.

Banks will cover the cost of the scheme, which will total around HUF 80 billion by July 1, Nagy said, adding that this is an amount they “can easily afford”.

“Rising interest rates have generated additional profits for banks,” Najib added.

When asked if the government had held talks with banks before introducing the new cap, he said it had “informed” the banking association of the move.

Najib said the stock of floating-rate loans held by some 60,000 small companies was close to 2 trillion forints, and the measure was aimed at preventing those companies from paying 20 percent or more on their loans.

“We want to avoid a recession next year and we have a chance of 1 percent growth,” Najib told a briefing.

“With this lending cap, we want to prevent the corporate sector from being hit again by a surge in repayments.”

In May, the government announced a windfall profits tax of 800 billion forints on so-called “extra profits” earned by banks, energy companies and other companies. The taxes, aimed at covering the budget deficit, have hit Budapest stocks and rattled investors.

(1 USD = 413.9900 Forints)

Reporting by Krisztina Than; Editing by Kirsten Donovan and Christina Fincher

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