Foreign Currency Loan Conversions and Currency Mismatches

43 Pages Posted: 20 Aug 2019

See all articles by Andreas M. Fischer

Andreas M. Fischer

Swiss National Bank; Centre for Economic Policy Research (CEPR)

Pinar Yesin

Swiss National Bank

Date Written: August 2019

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

JEL Classification: F15, F21, F32, F36, G15

Suggested Citation

Fischer, Andreas M. and Yeşin, Pınar, Foreign Currency Loan Conversions and Currency Mismatches (August 2019). CEPR Discussion Paper No. DP13923. Available at SSRN: https://ssrn.com/abstract=3439478

Andreas M. Fischer (Contact Author)

Swiss National Bank ( email )

Borsenstrasse 15
CH-8022 Zurich
Switzerland
+41 1 631 3294 (Phone)
+41 1 631 3901 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Pınar Yeşin

Swiss National Bank ( email )

Boersenstrasse 15, P.O.Box
Zurich, CH-8022
Switzerland
41-58-631-3969 (Phone)

HOME PAGE: http://www.pinaryesin.com

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