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Foreign currency loan conversions and currency mismatches

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  • Andreas M. Fischer
  • Pinar Yesin

Abstract

This paper examines the effect of currency conversion programs from Swiss franc-denominated loans to other currency loans on currency risk for banks in Central and Eastern Europe (CEE). Swiss franc mortgage loans proliferated in CEE countries prior to the financial crisis and contributed to the volume of non-performing loans as the Swiss franc strongly appreciated during the post-crisis period. Empirical findings suggest that Swiss franc loan conversion programs reduced currency mismatches in Swiss francs but increased currency mismatches in other foreign currencies in individual countries. This asymmetric effect of conversion programs arises from the loan restructuring from Swiss francs to a non-local currency and the high level of euro mismatches in the CEE banking system.

Suggested Citation

  • Andreas M. Fischer & Pinar Yesin, 2019. "Foreign currency loan conversions and currency mismatches," Working Papers 2019-04, Swiss National Bank.
  • Handle: RePEc:snb:snbwpa:2019-04
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    More about this item

    Keywords

    Loan conversion programs; emerging markets; currency mismatch;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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