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Does the Past Haunt Us No More? How Proximity to Foreign Currency Lending Experience Affects Trust in the Banking System and Financial Literacy

Author

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  • Zita Fellner

    (Magyar Nemzeti Bank)

  • Anna Marosi

    (Magyar Nemzeti Bank)

Abstract

While FX lending is often the focus of analyses on non-performing loans and postcrisis debt relief measures, its effect on debtors' subsequent behaviour and attitudes has been addressed to a far lesser extent in the research in recent years. In our study, we seek to fill this gap by examining the effect of proximity to foreign currency lending experience on an individual's trust in the banking system, and financial literacy. For our study, we relied on data from a CATI survey conducted on behalf of the MNB, the central bank of Hungary, in September 2021. The sample of 1,001 respondents represents the Hungarian adult population in terms of gender, age, type of municipality, region and educational level. In addition to the proximity to foreign currency lending experience, modelling controls included sociodemographic variables on the one hand, and variables related to borrowing on the other. The effect of proximity to foreign currency lending experience was examined in terms of both trust in the banking system and components of financial literacy. The effect was quantified using a linear regression model based on OLS estimation. According to our estimate, the role of proximity to foreign currency lending experience is less important than expected. Closer proximity to foreign currency lending experience has no apparent effect on a borrower's overall trust in banks operating in Hungary. At the same time, proximity to foreign currency lending experience increases the likelihood of the respondent's belief that a bank acts in bad faith (exploiting legal loopholes). Among the components of financial literacy, it plays a significant role only in financial knowledge, i.e. controlled for other factors, closer proximity on average increases financial knowledge. Conversely, it fails to influence, in any manner, the adoption of more conscious attitude, behaviour and practices.

Suggested Citation

  • Zita Fellner & Anna Marosi, 2022. "Does the Past Haunt Us No More? How Proximity to Foreign Currency Lending Experience Affects Trust in the Banking System and Financial Literacy," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 21(2), pages 37-65.
    • Handle: RePEc:mnb:finrev:v:21:y:2022:i:2:p:37-65
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    References listed on IDEAS

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    1. Elisabeth Beckmann & Thomas Scheiber & Helmut Stix, 2011. "How the Crisis Affected Foreign Currency Borrowing in CESEE: Microeconomic Evidence and Policy Implications," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 25-43,112-1.
    2. Adele Atkinson & Flore-Anne Messy, 2012. "Measuring Financial Literacy: Results of the OECD / International Network on Financial Education (INFE) Pilot Study," OECD Working Papers on Finance, Insurance and Private Pensions 15, OECD Publishing.
    3. Csorba, László, 2020. "The Determining Factors of Financial Culture, Financial Literacy and Financial Behavior," Public Finance Quarterly, Corvinus University of Budapest, vol. 65(1), pages 67-83.
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    More about this item

    Keywords

    foreign currency lending; financial literacy; trust in the banking system;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General

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