Housing Loans Growth, Foreign Currency Risk and Supervisory Response: The Polish Case

28 Pages Posted: 31 Dec 2016

Date Written: November 7, 2007


The spectacular growth of household loans in Poland and in other new member states, particularly in foreign currencies, has attracted particular attention of central banks and supervisors, because of its potential implications to the stability of the banking sector. In the paper, we assess the financial stability risks arising from these exposures using the micro-data form Polish households budget surveys. We define the financial-margin and stress-test every individual household against the financial shocks (interest rate and exchange rate shock) as well as shock on the labour market. We conclude that, in spite of rapid credit growth in the period of 1998-2006 and continuous easing of lending policies by the banks at least since 2003, the ability of the household sector to repay debts did not deteriorate. We find also that the financial margin (and thus ability to repay debt) is considerably higher among households repaying mortgage loans, however, at the same time, these households are much more vulnerable to financial shocks than other borrowers. We compare also the implications of different types of shock of the comparable magnitude and find that the impact of fx or interest shocks on the ability of households to repay debts is considerably lower than in the case of labour market shock, although among households that repay mortgage loans the differences between vulnerabilities to these shocks are much smaller. Using the survey data, we analyse also the implication of the new prudential regulations on bank’s behaviour and find evidence of regulatory arbitrage. We conclude that the credit risk rather than financial risks is a major indirect risk to the banking sector arising from exposures to household loans and possibly the next downturn in the credit cycle could be a challenging period for banks.

Keywords: credit growth, households, financial stability, budget survey, debt burden, stress test, macroeconomic shocks

JEL Classification: G21, G0, E58

Suggested Citation

Żochowski, Dawid and Zajączkowski, Slawomir, Housing Loans Growth, Foreign Currency Risk and Supervisory Response: The Polish Case (November 7, 2007). Available at SSRN: https://ssrn.com/abstract=2891508 or http://dx.doi.org/10.2139/ssrn.2891508

Dawid Żochowski (Contact Author)

European Central Bank ( email )

Sonnemannstrasse 20
Frankfurt am Main, 60314

Slawomir Zajączkowski

National Bank of Poland ( email )

00-919 Warsaw

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