Hungary's foreign loans scheme should not upset bank system - minister

BUDAPEST (Reuters) - Hungary's efforts to ease the burdens of foreign-currency loan holders cannot threaten the operability of the banking sector, Economy Minister Mihaly Varga said on Sunday.

Hundreds of thousands of Hungarian families are reeling from loan repayments which have shot up as the forint has lost value against the Swiss franc, a favoured low-interest option for mortgages before the 2008 financial crisis.

The ruling conservative party Fidesz, which faces elections in April or May, this month gave banks an ultimatum to cut the burden of foreign-currency mortgage holders by November.

Varga reiterated in an interview, quoted on the www.atv.hu website of ATV television, that the government will take measures if banks do not find a solution by the November 1 deadline.

Hungary's mostly foreign-owned banks fear that a new scheme to help borrowers could entail a quick conversion of more than 10 billion Swiss francs ($10.8 billion) into forints, inflicting new losses on banks and further undermining the forint.

Mihaly Patai, the head of Hungary's Bank Association, has said that the banking system and the forint would be hammered if banks are forced to convert loans in one go.

The government has said that the loans should be converted into forints but has not presented a scheme yet on how that should be done.

When asked in the interview about the conversions, Varga said:

"No government member has said that we would want to convert the loans into forints instantly."

Foreign banks whose Hungarian units may be hit by a new mortgage relief scheme include Austria's Raiffeisen (VIE:RBI) and Erste (VIE:EBS), Germany's Bayerische Landesbank (FRA:BLPA) and Italy's Intesa Sanpaolo (MIL:ISP).

(Reporting by Sandor Peto; Editing by James Dalgleish)