REUTERS SUMMIT-Some of Hungary's banks will need capital hike after loan refunds, official says

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BUDAPEST, Sept 29 (Reuters) - Some banks operating in Hungary will have to raise capital by hundreds of millions of euros each after they settle refunds on past loans with clients, Economy Ministry state secretary Gabor Orban told Reuters on Monday.

Hungary's parliament passed a law last week that will force banks to compensate clients for past charges on loans that courts and the government found unfair. This is expected to cost banks about 1 trillion forints ($4 billion), Orban said at the Reuters Eastern Europe Investment Summit.

He said there was a strong political commitment to convert foreign currency loans of households into forints, which could happen in the first quarter or first half of next year.

Orban said the conversion will be limited to mortgages: only home loans and home equity loans will be involved.

The government has not yet made a decision on whether the conversion would be done at or below the spot market exchange rate. But Orban said converting below the market rate could pose some risk to financial stability and this should be taken into account.

"I think this would risk financial instability to some extent and this might be one of the considerations in the decision. It would complicate banks' capital adequacy issues and this has to be taken into account when making the decision," he said, speaking at Reuters Budapest office.

Orban also said the bank tax will remain in place in its present form next year.

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Follow Reuters Summits on Twitter @Reuters_Summits (Reporting by Krisztina Than and Gergely Szakacs; Editing by Ruth Pitchford)