Households’ Exposure to Foreign Currency Loans in CESEE EU Member States and Croatia
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.
Volume (Year): (2011)
Issue (Month): 1 ()
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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Brzoza-Brzezina, Michał & Chmielewski, Tomasz & Niedźwiedzińska, Joanna, 2010.
"Substitution between domestic and foreign currency loans in Central Europe. Do central banks matter?,"
Working Paper Series
1187, European Central Bank.
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- 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.
- 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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