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Hungary's government seeks constitutional ruling on FX loans -MTI

By Krisztina Than

BUDAPEST, Nov 29 (Reuters) - Hungary's government asked the constitutional court on Friday to determine whether foreign currency loan contracts could be unconstitutional and if they could be modified with new legislation, state news agency MTI reported.

Foreign currency mortgages were popular in Hungary before the 2008 global financial crisis, but have become a huge burden for households, and for the economy.

Prime Minister Viktor Orban's government and ruling Fidesz party have said they want to resolve the problem, and Hungary's mostly foreign-owned banks fear they could be hit by a new measure to rescue borrowers.

MTI cited a motion submitted to the court by the justice ministry. It said the ministry asked the court to consider a clause in the constitution which says that Hungary ensures conditions for fair competition, but takes action against any abuse of dominant market position and protects consumers.

The ministry asked the court to rule if some conditions in the loan contracts, such as making borrowers bear the risks of exchange rate losses or allowing banks to raise interest rates unilaterally on the loans, could be unconstitutional, MTI said.

MTI said the government also wanted to know under what constitutional conditions the existing contracts could be modified with legislation.

The court told MTI that it had received the motion, but could not say when it would be put on the agenda.

"This is the latest twist in a very long-running saga which continues to create negative headline risk for Hungary," Standard Bank analyst Timothy Ash said in a note.

"With (parliamentary) elections due by April, the issue is clearly very political, and likely a vote winner still for the Fidesz government."

The loans, taken out mostly in Swiss francs and euros, have become costly to service as the forint has fallen in value, hampering domestic consumption.

Banks lost more than 1 billion euros ($1.36 billion) as a result of a 2011 government relief scheme for households with foreign currency mortgages.

Any new government measure would affect Hungary's biggest lender, OTP Bank, as well as local units of Austrian Raiffeisen and Erste, Italy's Intesa Sanpaolo and UniCredit, Belgium's KBC and others.

Separately, earlier this month Orban urged top judges to rule on whether banks or borrowers should bear exchange rate losses on foreign currency loans, and whether banks can unilaterally modify the interest rates on the loans.

($1 = 0.7345 euros) (Reporting by Krisztina Than; Editing by Pravin Char)