Hungary fairly handled FX spread dispute in loan repayment case -EU court

BUDAPEST (Reuters) - Hungary was not unfair to borrowers in the exchange rate it set in repaying loans denominated in foreign currency, the European Union's top court ruled on Thursday, rejecting a demand to invalidate such agreements.

The issue of foreign currency loans weighed on Hungarian borrowers and banks in the first half of the last decade after many took out big loans in euros and Swiss francs to exploit significantly lower borrowing costs.

A Hungarian borrower challenged a provision in a 2007 loan contract concluded with Hungary's OTP Group, saying the practice of issuing the loan at the forex purchase rate and repaying instalments at the selling rate was unfair and therefore the contract should be void.

Parliament subsequently enacted legislation stipulating that the official exchange rate of the National Bank of Hungary should be applied both when issuing and repaying the loans.

Banks have since converted retail loans into forints with the help of the NBH to rid borrowers of exchange rate risks.

But the Hungarian borrower refused to withdraw his litigation and a Hungarian court asked the European Court of Justice to make a final ruling.

The ECJ said it "observes that the solution adopted by the Hungarian legislature corresponds to the objective pursued by (the Unfair Contract Terms Directive), which is to restore the balance between the parties while maintaining the validity of the agreement as a whole".

It said such contracts could not be declared void purely on the basis of a single provision damaging borrowers' interests.

"In accordance with the criterion of objectivity laid down by the Court in its relevant case law, the situation of one of the parties to the agreement cannot be regarded, under national law, as the decisive criterion governing the fate of the agreement," it said.

($1 = 293.2200 forints)

(Reporting by Gergely Szakacs and Foo Yun Chee; Editing by Mark Heinrich)