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Foreign currency loan conversions and currency mismatches

Andreas Fischer () and Pinar Yesin ()

No 13923, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 bank exposure 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.

Keywords: currency mismatch; emerging markets; Loan conversion programs (search for similar items in EconPapers)
JEL-codes: F15 F21 F32 F36 G15 (search for similar items in EconPapers)
Date: 2019-08
New Economics Papers: this item is included in nep-eec
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