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Credit Risk of FX Loans in Poland. Debt Service Burden and the Effect of Neutralization of Currency Depreciation by Foreign Interest Rates

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  • Zuzanna Wośko

    (Warsaw School of Economics)

Abstract

This paper describes an analysis of the effects of both foreign exchange (FX) risk and interest rate risk on installments of the housing FX loan using classic comparative statics approach. By focusing on sensitivity of annuity with respect to infinitesimal changes of parameters it presents the impact of the interest rate and FX rate on installments in terms of their shares of the total outstanding in foreign currency, and illustrates using values, in Polish zlotys, for three example loans extended during the period when Poland saw its most intensive FX lending. This analysis represents an attempt to answer a question frequently raised in this country of late: does the issue of debt servicing housing FX loans matter for borrowers and therefore could affect banks’ loan portfolio quality?

Suggested Citation

  • Zuzanna Wośko, 2016. "Credit Risk of FX Loans in Poland. Debt Service Burden and the Effect of Neutralization of Currency Depreciation by Foreign Interest Rates," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 8(1), pages 43-59, March.
    • Handle: RePEc:psc:journl:v:8:y:2016:i:1:p:43-59
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    References listed on IDEAS

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    More about this item

    Keywords

    credit risk; housing FX loans; FX lending; debt service;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics

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