Hungary: Easement on Loan Portfolio Transfers

08 July 2015 | newsletters

The Hungarian Parliament has adopted an amendment to the Hungarian Banking Act (entering into force on 7 July 2015) that provides for the regulation of loan portfolio transfers.  The amendment aims to make Hungarian banks' lives easier by deviating from the general rule of the Hungarian Civil Code which normally requires a borrower to agree to the transfer between lenders and terminates all security interests, unless the security provider likewise agrees.  

Instead, under the new amendment, such a transfer must be authorized directly by the Hungarian National Bank, bypassing the need for the agreement of either the borrower or the security provider.

The Hungarian Banking Act’s exemption covers only those portfolios that consist of at least twenty loan or financial leasing agreements, or whose value is higher than 10 billion forints (approx. EUR 33 million).  Thus, even one loan agreement may qualify as a 'loan portfolio', provided that the transaction value reaches the threshold.

Under this new loan portfolio transfer regime, the transferor bank must notify each borrower and the security provider of the transfer.  Furthermore, if any conditions of the loan agreement will change due to the transfer, express notice of these changes must be given; however, under no circumstances may the interest rate, fees and costs be modified.  Upon receiving notification, the borrower may terminate the loan agreement by written notice.  Should the borrower do so, the borrower’s obligations become due immediately (unless a notice period is set forth in the terminated loan agreement).

The amendment unfortunately does not provide a complete solution to the problems created by the general rule of the Hungarian Civil Code (i.e. the agreement requirement from both the borrower and the security provider and the termination of all security interests), because it makes the transfer of the loan portfolio possible only among financial institutions and sets forth the authorization requirement with the Hungarian National Bank.