Central Europe’s love affair with foreign currency loans needs careful management, but it does not pose a risk to stability, leading bankers in the region told the Reuters Central European Investment Summit on Wednesday.
Lending in low-interest currencies can make credit cheaper in countries where domestic rates are high and where borrowers expect their local currencies to remain stable or even appreciate over the maturity of their loans. It is most rampant in the Baltics, where between 60 and 75% of all credit - retail and corporate - is in euros or dollars.
Roughly half of Romanian, Bulgarian and Hungarian banks’ loan books are in euros, dollars or Swiss francs, too. The risk - especially for less sophisticated and unhedged retail lenders - is that a sharp drop in the local currency against the loan currency raises redemption rates. The risk for lenders is that this results in increasing defaults.
Yet bankers told Reuters this risk is limited by the fact that they are applying stricter lending standards to forex loans. „We are in the risk business,” Patrick Butler, chief financial officer of Raiffeisen Zentralbank (RZB), told the RCEIS in Vienna. RZB’s east European arm Raiffeisen International is the region’s third-biggest bank. (Read more)