Households’ foreign currency borrowing in Central and Eastern Europe

Fidrmuc, Jarko; Hake, Mariya; Stix, Helmut

doi:10.1016/j.jbankfin.2012.06.018

Cited by 75 publications

(75 citation statements)

References 28 publications

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“…By testing these hypotheses with bank-level data for a broad set of transition economies, we provide micro-evidence on FX lending to both firms and households and complement cross-country studies of aggregate FX lending such as Luca and Petrova (2008) and Basso et al (2010), firm-level and household-level studies such as Brown et al (2011) and Fidrmuc et al (2011), as well as bank-level studies for individual countries such as Brown et al (2010) and Degryse et al (2011).…”

Section: Bank Ownership and Client Structurementioning

confidence: 90%

“…Beer et al (2010) examine survey data covering over 2,500 Austrian households and find that those households with higher wealth, higher income and better education are more likely to have foreign currency (CHF) rather than local currency (EUR) mortgages. Fidrmuc et al (2011) show that the intention of households to take FX loans in Eastern Europe is related to household age, education and savings in FX. Finally, Degryse et al (2011) provide evidence that suggests that FX lending in Poland is related to bank ownership.…”

Section: Bank Ownership and Client Structurementioning

confidence: 99%

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Foreign banks and foreign currency lending in emerging Europe

Brown

Haas

2012

Economic Policy

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SUMMARYBased on survey data from 193 banks in 20 countries we provide the first bank-level analysis of the relationship between bank ownership, bank funding and foreign currency (FX) lending across emerging Europe. Our results contradict the widespread view that foreign banks have been driving FX lending to retail clients as a result of easier access to foreign wholesale funding. Our cross-sectional analysis shows that foreign banks do lend more in FX to corporate clients but not to households. Moreover, we find no evidence that wholesale funding had a strong causal effect on FX lending for either foreign or domestic banks. Panel estimations show that the foreign acquisition of a domestic bank does lead to faster growth in FX lending to households. However, this is driven by faster growth in household lending in general not by a shift towards FX lending.-Martin Brown and Ralph De Haas

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Section: Bank Ownership and Client Structurementioning

confidence: 90%

Section: Bank Ownership and Client Structurementioning

confidence: 99%

Foreign banks and foreign currency lending in emerging Europe

Brown

Haas

2012

Economic Policy

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“…Brown et al (2014) confirm this result using administrative data from one Bulgarian Bank. Brown et al (2011) and Fidrmuc et al (2013) use survey data to provide firmlevel and household-level evidence on the determinants of foreign currency borrowing in Emerging Europe. Hake et al (2014) provide a meta-analysis of studies on the determinants of dollarization in Emerging Europe and Latin America.…”

Section: Evidencementioning

confidence: 99%

The euroization of bank deposits in Eastern Europe

Brown¹,

Stix²

2014

Economic Policy

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SUMMARYIn Central, Eastern and Southeastern Europe a substantial share of bank deposits are denominated in foreign currency. Deposit euroization poses key challenges for monetary policy and financial sector supervision. On the one hand, it limits the effectiveness of monetary policy interventions. On the other hand, it increases financial sector fragility by exposing banks to currency risk or currency-induced credit risk. Policymakers disagree on whether countries in the region should tackle deposit euroization with 'dedollarization' policies or should rather strive to adopt the Euro as their legal tender. Assessing the potential effectiveness of 'dedollarization' policies requires a clear understanding of which households hold foreign currency deposits and why they do so. On the basis of survey data covering 16,375 households in ten countries in 2011 and 2012, we provide a comprehensive household-level analysis of deposit euroization in Central, Eastern and Southeastern Europe. We examine how households' preferences for, and holding of, foreign currency deposits are related to individual expectations about monetary conditions and network effects. We also examine to what extent monetary expectations and deposit euroization are the legacy of past financial crises or the outflow of current policies and institutions in the region. Our findings suggest that deposit euroization in Central, Eastern and Southeastern Europe can be partly tackled by prudent monetary and economic decisions by today's policymakers. The preferences of households for Euro deposits are partly driven by their distrust in the stability of their domestic currency, which in turn is related to their assessment of current policies and institutions. However, our findings also suggest that a stable monetary policy may not be sufficient to deal with the hysteresis of deposit euroization across the region. First, we confirm that the holding of foreign currency deposits has become a 'habit' in the region. Second, we find that deposit euroization is still strongly influenced by households' experiences of financial crises in the 1990s. Our findings question the effectiveness of supply side interventions (e.g. bank regulation) or demand side interventions (e.g. local currency capital market development) in de-euroizing household savings. First, we show that deposit euroization is largely demand driven. Second, we show that households already have access to a broad range of savings products in local currency.

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“…Zettelmeyer et al (2010) and Király and Banai (2014)). In most of these countries, inflation rates had been high and volatile, exchange rates had been stable or even appreciating, the low Euro and the even lower Swiss franc interest rates and the expected close date of joining the Euro have made the FXD loans attractive (Brown and de Haas (2012), Fidrmuc et al (2013)). All these circumstances contributed to the fact that by 2008 in most of these countries, the FXD loans had summed up to 50-80% of the total household loans.…”

Section: Introductionmentioning

confidence: 99%

Mortgages Denominated in Domestic and Foreign Currencies: Simple Models

Király

Simonovits

2017

Emerging Markets Finance and Trade

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After the short temporary popularity of FX denominated loans, during the Great Financial and Economic Recession (2007Recession ( -2013, the burden of these loans has become unaffordable for a lot of borrowers. We have designed a family of simple models to compare the cash flows of installments and the paths of outstanding debts denominated in domestic and foreign currencies, respectively. Having these models, we are able to draw several conclusions relevant to the recent debates about the foreign currency denominated loans. Our study demonstrates the key role played by the uncovered interest rate parity in comparisons.Moreover, we give a closed-form solution for the trade-off between the depreciation and the unilateral interest rate increases by the banks. In a simple model, we determine the optimal size for domestic and foreign currency denominated loans, respectively. AbstractAfter the short temporary popularity of foreign currency denominated (FXD) loans, during the Great Financial and Economic Recession (2007)(2008)(2009)(2010)(2011)(2012)(2013), the burden of these loans has become unaffordable for a lot of borrowers in East Central Europe. We have designed a family of simple models to compare the cash flows of installments and the paths of outstanding debts denominated in domestic and foreign currencies, respectively. Having these models, we are able to draw several conclusions relevant to the recent debates about the FXD loans. Our study demonstrates the key role played by the uncovered interest rate parity in the comparisons. Moreover, we give a closed-form solution for the trade-off between the depreciation and the unilateral FX interest rate increases by the banks. Adding a lifetime utility function to our simple model, we determine the optimal size for domestic and foreign currency denominated loans, respectively.

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Households’ foreign currency borrowing in Central and Eastern Europe

Cited by 75 publications

References 28 publications

Foreign banks and foreign currency lending in emerging Europe

Foreign banks and foreign currency lending in emerging Europe

The euroization of bank deposits in Eastern Europe

Mortgages Denominated in Domestic and Foreign Currencies: Simple Models

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