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

Katharina Steiner ()
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Katharina Steiner: Oesterreichische Nationalbank, Foreign Research Division

Focus on European Economic Integration, 2011, issue 1, 6-24

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.

Keywords: Financial development in transition; foreign currency loan; supply and demand; currency substitution; emerging markets (search for similar items in EconPapers)
JEL-codes: C23 E41 F31 G19 P20 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (18)

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