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Households’ Exposure to Foreign Currency Loans in CESEE EU Member States and Croatia

Author

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  • Katharina Steiner

    () (Oesterreichische Nationalbank, Foreign Research Division)

Abstract

Most Central, Eastern and Southeastern European (CESEE) countries saw a substantial rise in foreign currency lending to households during the last decade. This involved risks to macrofinancial stability, in particular because most of these borrowers were unhedged. This paper provides evidence on eleven CESEE countries regarding (1) the extent of foreign currency lending to households from 1995 to 2009, (2) the supply and demand factors at work in the period before the crisis and (3) the regulatory responses to address the situation. Panel data estimates covering the period from 1996 to 2007 reveal that, on the demand side, foreign currency borrowing was attractive because interest rates for foreign currency loans were lower than those on domestic currency loans, and private sector consumption as well as housing prices were on the rise. Mitigating factors on the supply side were higher interest margins on domestic currency loans than on foreign currency loans and banking sector reforms. Regulatory measures account at least partly for the different patterns of currency structures according to descriptive evidence.

Suggested Citation

  • Katharina Steiner, 2011. "Households’ Exposure to Foreign Currency Loans in CESEE EU Member States and Croatia," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 6-24.
  • Handle: RePEc:onb:oenbfi:y:2011:i:1:b:1
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    File URL: https://www.oenb.at/dam/jcr:d68f3317-3c7f-496a-ace3-fd5642c21211/feei_2011_q1_studies_01_tcm16-224901.pdf
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    References listed on IDEAS

    as
    1. Brzoza-Brzezina, Michał & Chmielewski, Tomasz & Niedźwiedzińska, Joanna, 2007. "Substitution between domestic and foreign currency loans in Central Europe. Do central banks matter?," MPRA Paper 6759, University Library of Munich, Germany.
    2. De Haas, Ralph & Naaborg, Ilko, 2006. "Foreign banks in transition countries. To whom do they lend and how are they financed?," MPRA Paper 6320, University Library of Munich, Germany.
    3. Peter Backé & Doris Ritzberger-Grünwald & Helmut Stix, 2007. "The Euro on the Road East: Cash, Savings and Loans," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 114-127.
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    Cited by:

    1. Crespo Cuaresma, Jesús & Fidrmuc, Jarko & Hake, Mariya, 2014. "Demand and supply drivers of foreign currency loans in CEECs: A meta-analysis," Economic Systems, Elsevier, vol. 38(1), pages 26-42.

    More about this item

    Keywords

    Financial development in transition; foreign currency loan; supply and demand; currency substitution; emerging markets;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G19 - Financial Economics - - General Financial Markets - - - Other
    • P20 - Economic Systems - - Socialist Systems and Transition Economies - - - General

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