By Marton Dunai and Krisztina Than
BUDAPEST, July 24 (Reuters) - Hungary's government, which faces an election next year, wants to phase out foreign currency mortgages, a minister was reported as saying on Wednesday, but the country's top businessman said the plan may hurt banks again and scare off investors.
Prime Minister Viktor Orban has promised to help the hundreds of thousands of borrowers who took out cheap loans in Swiss francs, euros and Japanese yen and then lost out after the exchange rate shifted.
But the government plan is likely to hurt banks' bottom line and test the patience of investors, whose appetite for emerging markets is already waning now that the tide of cheap money from the U.S. Federal Reserves looks set to recede.
Orban's cabinet convened on Wednesday in the parliament building on the banks of the Danube river to determine how to help people with foreign currency mortgages.
The only word to come out of the meeting was a comment from Economy Minister Mihaly Varga to Hungary's MTI news agency.
He said the government's objective was to ultimately phase out foreign currency loans because they posed social and economic risks that were not sustainable in the long-term, the agency reported.
Varga did not give a timetable for phasing out the loans. He said the government wanted talks with the banks about how to achieve the objective, the agency reported.
The agency did not give a direct quote from Varga and the economy ministry, contacted by Reuters, declined to give more details.
TRUST IN HUNGARY
Hungary's foreign currency loans total about 12 billion euros, or roughly 12 percent of the country's economic output, and many of them were issued by foreign banks.
Austria's Raiffeisen, Germany's Bayerische Landesbank and Italy's Intesa Sanpaolo are among the big lenders with units in Hungary.
A powerful critic of the government's plans for the mortgages emerged on Wednesday when Sandor Csanyi, chairman and chief executive of Hungary's biggest lender, OTP Bank, spoke out for the first time on the issue.
He said the government had already inflicted pain on the banks by imposing 'crisis taxes' and a previous round of relief for mortgage borrowers, and was now preparing a new measure.
'Such a new step would increase distrust (towards Hungary), and reduce banks' ability to attract capital,' Csanyi said.
He said banks were willing to discuss ways of helping borrowers, but should not carry all the burden.
'I understand that people have got into untenable situations, but making it out like banks alone are to blame belongs in the realm of political marketing.'
The comments from Csanyi are significant because until now he has had a close relationship with Orban and kept any disagreements out of the public eye.
Csanyi last week sold a big chunk of his shares in the bank. That alarmed investors, already nervous about the government's mortgage scheme and volatility in emerging markets, and OTP's share price plummeted.
Csanyi said that he did not know what the government was planning on forex mortgages and that his decision to sell OTP shares was not linked to it. He said he had been planning to sell anyway, to finance another investment.
However, the bank boss, who has in the past shared bottles of wine with Orban at private meetings and sat next to him in VIP boxes at soccer matches, was unusually forthright in criticising people around the prime minister.
He took aim at Orban's chief of staff, Janos Lazar, who has compared the OTP chief to an over-powerful octopus with tentacles that reach into every area of Hungarian life.
'Some people clearly consider it an achievement to be mouthing off about me because then they appear brave. I'm thinking about Mr. Lazar,' Csanyi said.
(Additional reporting by Gergely Szakacs; Writing by Christian Lowe) Keywords: HUNGARY LOANS/
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