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Foreign Currency Lending in Central, Eastern and Southeastern Europe: The Case of Austrian Banks

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Author Info

  • Johannes Pann

    ()
    (Oesterreichische Nationalbank)

  • Reinhardt Seliger

    ()
    (Oesterreichische Nationalbank, Financial Markets Analysis and Surveillance Division)

  • Julia Übeleis

    ()
    (Oesterreichische Nationalbank)

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    Abstract

    This paper describes the exposure of Austrian banks to foreign currency loans in Central, Eastern and Southeastern Europe and the CIS and elaborates on its risks to banking sector stability. Austrian banks’ foreign currency loan exposure more than doubled between 2005 and 2009, their regional subsidiaries’ foreign currency loan exposure continued to be higher than the market average in this period. Our findings confirm the key importance of funding risks and do not contradict the assumption of a nonlinear relationship with regard to credit risk. However, a simple comparison of risk indicators does not unambiguously indicate an overall higher credit risk in the foreign currency loan portfolio. Most recent data suggest that Austrian banks’ foreign currency loan exposure is declining. Policymakers are now called upon to use the momentum and strike a balance between restricting foreign currency lending to foster a more sustainable growth path and avoiding negative procyclical effects.

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    File URL: http://www.oenb.at/dms/oenb/Publikationen/Finanzmarkt/Financial-Stability-Report/2010/Financial-Stability-Report-20/chapters/fsr_20_special_topic_01_tcm16-214489.pdf
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    Bibliographic Info

    Article provided by Oesterreichische Nationalbank (Austrian Central Bank) in its journal Financial Stability Report.

    Volume (Year): (2010)
    Issue (Month): 20 ()
    Pages:

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    Handle: RePEc:onb:oenbfs:y:2010:i:20:b:1

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    Related research

    Keywords: Austrian banks; Eastern Europe; foreign currency loan; banking sector stability; credit risk;

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    References

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    1. Martin Brown & Steven Ongena & Pinar Yesin, 2009. "Foreign Currency Borrowing by Small Firms," Working Papers 2009-02, Swiss National Bank.
    2. Sandra Dvorsky & Thomas Scheiber & Helmut Stix, 2010. "Real Effects of Crisis Have Reached CESEE Households: Euro Survey Shows Dampened Savings and Changes in Borrowing Behavior," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 2.
    3. Leslie Teo & Charles Enoch & Carl-Johan Lindgren & Tomás J. T. Baliño & Anne Marie Gulde & Marc Quintyn, 2000. "Financial Sector Crisis and Restructuring," IMF Occasional Papers 188, International Monetary Fund.
    4. Beer, Christian & Ongena, Steven & Peter, Marcel, 2010. "Borrowing in foreign currency: Austrian households as carry traders," Journal of Banking & Finance, Elsevier, vol. 34(9), pages 2198-2211, September.
    5. Luca, Alina & Petrova, Iva, 2008. "What drives credit dollarization in transition economies?," Journal of Banking & Finance, Elsevier, vol. 32(5), pages 858-869, May.
    6. Christoph B. Rosenberg & Marcel Tirpák, 2008. "Determinants of Foreign Currency Borrowing in the New Member States of the EU," IMF Working Papers 08/173, International Monetary Fund.
    7. Basso, Henrique S. & Calvo-Gonzalez, Oscar & Jurgilas, Marius, 2007. "Financial dollarization: the role of banks and interest rates," Working Paper Series 0748, European Central Bank.
    8. Sandra Dvorsky & Thomas Scheiber & Helmut Stix, 2009. "CESEE Households amid the Financial Crisis: Euro Survey Shows Darkened Economic Sentiment and Changes in Savings Behavior," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 4.
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    Cited by:
    1. Pistor Katharina, 2012. "Governing Interdependent Financial Systems: Lessons from the Vienna Initiative," Journal of Globalization and Development, De Gruyter, vol. 2(2), pages 1-25, January.

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