Fresh concerns over the health of the Hungarian banking system have risen following the government’s policy to allow households to repay FX mortgages at preferential exchange rates. Our best estimate is that banks should be able to absorb this without a major hit to tier 1 capital ratios. Nevertheless, the plan amounts to default by the back door and, with no obvious way out of the country’s FX debt problem, we would not be surprised to see further such measures over the next year or so.