Money, Finance and Banking | Financial news

Cee money hungarys banks may see some calm after fresh turmoil

´╗┐* Banks may pay up to 2-3 billion euros to compensate borrowers* Some banks may need capital boost after fresh blow, analysts say* Measures could boost consumer demand, reduce Hungary's vulnerability* Banks would benefit from stronger economy, but will they lend?By Krisztina ThanBUDAPEST, July 11 After a rough four years, banks in Hungary now face another blow - government measures to help borrowers could force them swallow billions of euros in costs. If so, some of the country's foreign-owned banks may need a capital boost from their parents and some might even decide to leave the once lucrative Hungarian market, analysts say. But those who stick around despite the hardship may see a silver lining: strengthening domestic demand and a growing and less vulnerable economy. It is hard to predict how the new losses will affect banks' willingness to lend and whether they will trust Prime Minister Viktor Orban's government not to confront them with more harsh policies.

Andreas Treichl, CEO of Austria's Erste Group, told CNBC earlier this week that he hoped the "ordeal" was slowly ending in Hungary after years of tough government policies. He said Budapest's approach to banks could be summed up as:"We're going to milk the cow as much as we can, but we are not going to slaughter it."After providing hefty profits in most of the past decade, Hungary since 2010 has become something of a nightmare for banks, which include Erste and Raiffeisen, and Italy's Intesa. They were hit by windfall taxes and various measures to bail out Hungarian borrowers who took up expensive foreign-currency loans. Those measures have cost them at least 1,000 billion forints ($4.39 billion) under Orban's government so far.

And now they might face up to 2 billion-3 billion euros of new costs under legislation approved last week. Banks will be forced to compensate borrowers for past interest rate and fee changes on consumer loans and or some charges on foreign- currency loans that Hungary's top court ruled were unfair. Bank stocks have tanked this week as they announced their expected hit from the measures one after the other. Raiffeisen said on Thursday it would take a charge of 120 million to 160 million euros, and Erste projected costs as high as 300 million euros. The added costs come at a critical time. Euro zone banks are undergoing so-called asset-quality reviews (AQR), where the European Central Bank sifts through their books to check for poor-quality loans.

EMBATTLED The new measures also include a conversion of $15 billion worth of foreign-currency mortgages into forints later this year that could result in further losses for the banks. But once they're all implemented, the landscape of Hungary's financial sector could change. Some experts believe the sector could undergo consolidation and then see a period of relative calm, even though the health of the banking system might deteriorate in the short term."We view the pending resolution of Hungary's FX mortgages positively as an improvement to longer-term policy flexibility, and necessary in paving the way for longer-term consolidation and stabilization of the embattled banking sector," analyst Phoenix Kalen at Societe Generale said in a recent note. On the positive side, eliminating the huge stock of foreign- currency loans will reduce Hungary's vulnerability, by reducing exposure to shifts in the exchange rate. Borrowers' repayments would decline, which should reduce the number of non-performing loans and improve the quality of bank loan books."Since there will be a capital transfer from the banking sector to the households, domestic consumption may stabilize in 2014 and 2015 which is temporarily supportive for economic growth," KBC analysts said in a note. The one aspect that is hard to foresee is how the new burden will make banks more willing to lend money in Hungary, after sharp deleveraging and an erosion of confidence in past years. If they are forced to take big additional losses on the conversion of the forex mortgages, the credit crunch could worsen, some analysts said."The lending activity of the banking sector may remain weak in this year and it may accelerate only slowly from next year," KBC analysts said. ($1 = 227.6500 Hungarian forints)

G7 to support climate insurance for poor, finance disappoints

´╗┐BONN, Germany, June 8 (Thomson Reuters Foundation) - Group of Seven leaders agreed on Monday to provide insurance against climate hazards for up to 400 million more vulnerable people and back development of early warning systems, but did not outline a clear path for increasing climate aid up to 2020. Experts at June 1-11 climate talks in Bonn were disappointed that G7 leaders gave only vague assurances they would work to mobilise $100 billion per year by 2020 to help poorer nations cope with extreme weather and rising seas, and to develop their economies cleanly - as promised by rich governments in 2009. Last month, German Chancellor Angela Merkel called for a roadmap for how the world will raise the additional $70 billion in climate funding needed to reach the $100 billion goal, from the current level of around $30 billion per year, saying the G7 summit should provide an "important signal" for that path. In a communique issued after the two-day summit in Bavaria, G7 leaders promised to "continue our efforts to provide and mobilize increased finance, from public and private sources, and to demonstrate that we and others are well on our way to meet the $100 billion goal"."We stand ready to engage proactively in the negotiations of the finance provisions of the Paris outcome," they said, referring to the U. N. conference in December where governments are due to agree a new global deal to tackle climate change. Anoop Poonia of Climate Action Network South Asia said G7 leaders had missed the opportunity to follow up on Merkel's announcement in May that Germany would double its climate finance contributions to 4 billion euros ($4.49 billion) per year by 2020."Their acknowledgement of the need to provide climate finance after 2020 was an improvement on previous positions but we urgently need a roadmap to the pledged $100 billion. These countries still have plenty of opportunity between now and Paris to step up to the plate," he added.

Oxfam also criticised the G7 failure to explain clearly how wealthy governments would scale up public climate finance."Developing countries need a credible financial roadmap, not a set of accounting tricks," said Tim Gore, head of climate and food policy with Oxfam. "Currently rich countries provide just 2 percent of what poor countries need to adapt to a changing climate."

INSURANCE, ENERGY PROJECTS Despite the disappointment over climate finance, some experts welcomed G7 decisions to back clean energy and climate-resilience projects in developing nations. The communique said G7 countries would intensify support for vulnerable countries' own efforts to manage climate change-related disaster risk. G7 governments will aim to increase by up to 400 million the number of people in the most vulnerable developing countries who have access to direct or indirect insurance coverage against climate-related hazards by 2020, and support early warning systems in the most vulnerable countries, the statement said.

The G7 also promised to speed up access to renewable energy in Africa and developing countries in other regions with a view to reducing energy poverty. Jennifer Morgan, director of the Global Climate Program at the World Resources Institute, said the commitments would "help build trust with developing countries ahead of the climate negotiations in Paris". Others noted the emphasis in the communique on mobilising substantial financial resources from the private sector and multilateral development banks, suggesting this was an attempt to shift the burden from cash-strapped finance ministries. G7 leaders also agreed on Monday to wean their economies off carbon fuels and supported a global goal for reducing greenhouse gas emissions by 2050. But climate activists in Bonn and elsewhere said the G7 recognition that decarbonisation of the global economy was needed "over the course of this century" was too slow, arguing it should happen by 2050 instead."Putting off action until the end of the century will have a devastating impact on the lives and livelihoods of millions of people in the developing world," Asad Rehman, international climate campaigner with Friends of the Earth, said.