Hungary's government has raised a lot of eyebrows among investors since it came to power in May 2010.
Conservative Prime Minister Viktor Orban forced business and banks to pay dearly to help the country recover from the crisis that hit in late 2008.
Orban's government nationalized about $14 billion in assets from private pensions, imposed big taxes on corporations and fixed the exchange rate for loans taken by individuals from banks in Swiss francs for three years, to make it easier for people to pay.
So far, analysts have said that the government was just looking to boost growth even if the measures were a bit unorthodox.
"Because of the weak growth and exposure to FX loans, the government has to resort to unorthodox measures as we have seen in the last year," Simon Quijano-Evans, EMEA Chief Economist at ING, told CNBC.com.
But the latest law approved in mid-September caused uproar.
The law allows holders of debt denominated in euros, Swiss francs or Japanese yen to repay their debt at a fixed rate during a three-month period in one go. The rate is lower than the market rate, which will force banks to take potentially big losses, analysts said.
"Hungary is a mess at the moment, to be honest," Gyula Toth, head of EEMEA FI/FX Strategy at UniCredit, said. "This law came at the worst moment. It came at a time when everybody is worried about everything."
The net impact of the early repayment proposal could be a capital loss of between 20 percent and 40 percent, Toth wrote in a market note. Maximum losses for the banking sector would be between 2.2 billion euros ($2.9 billion) and 4.1 billion euros, depending on how the new law will be applied, he added.
"It's a gross misunderstanding on the government's part. Hungary's credibility suffers," Toth said, adding that he would not advise investors to put money in the country right now.
"There is nowhere to hide in Hungary," he said.
Hungary's Banking Association said the law could seriously hurt the economy and that banks will challenge it in the Constitutional Court and the European Union's courts.
Analysts lowered their estimates for growth in Hungary's economy, with ING saying domestic consumption is suffering and construction activity has been "very subdued without new private credit and state investments."