Regulation of Foreign Currency Mortgage Loans : The Case of Transition Countries in Central and Eastern Europe

The current financial crisis has had a major impact on the financial sectors of the Central and Eastern European (CEE) region. The impact has been exacerbated in many cases by the presence of foreign currency mortgage loans. The risk is both for the borrower, who has to make loan repayments in a currency different from that of the income he or she is generating, and for the banks, who need to fund themselves in a foreign currency. This study seeks to determine whether foreign currency mortgage loans really represent a major risk to all systems where they are present and then to assess what measures have been taken to deal with it. The optimal regulatory response will be appropriate for the macroeconomic context and also the consumer needs and best interests. A complete ban on the foreign currency product class appears appropriate for low-inflation economies, where consumer benefits from the product are low and the risk of speculation and has sent demand higher. Within that subset, fiscal support and other steps to further develop funding markets and improve affordability are likely to be required to help support local currency products. Also, these are the economies most likely to access the Euro in the near future, with limited exchange rate risk. Examples are Poland or the Czech Republic. For higher inflation economies facing choices of de-dollarization on one hand and possible imminent access to Eurozone on the other, foreign currency mortgages are likely to remain a part of the product menu for the near future. The challenge is to design a combined support and regulation strategy that creates a fair risk sharing arrangement between consumers and lenders and limits lender liquidity risks.

Bibliographic Details

Main Authors:	Dübel, Hans-Joachim, Walley, Simon
Language:	English en_US
Published:	World Bank, Washington, DC 2010-12
Subjects:	AMORTIZATION, BALANCE SHEET, BANK INTEREST RATE, BANK LENDING, BANK LIQUIDITY, BANK MARKET, BANK REGULATION, BANKING SECTOR, BANKING SECTOR ASSETS, BANKING SYSTEM, BANKING SYSTEMS, BOND ISSUANCE, BOND ISSUE, BOND ISSUERS, BOND MARKETS, BORROWER, BORROWING COSTS, BRANCH NETWORK, BROKER, BROKERS, CAPITAL BASE, CAPITAL FLOWS, CAPITAL GAIN, CAPITAL GAINS, CAPITAL INFLOWS, CAPITAL MARKET, CAPITAL REQUIREMENT, CAPITAL REQUIREMENTS, CAPITALIZATION, CASH FLOWS, CDS, CENTRAL BANK, CENTRAL BANKS, COLLATERAL, COLLATERAL REQUIREMENTS, COMMERCIAL BANK, COMMERCIAL BANKS, CONSUMER CREDIT, CONSUMER GOODS, CONSUMER LOANS, CONSUMER PRICE INDEX, CONSUMER PROTECTION, CONTRACTUAL SAVING, CONTRACTUAL SAVINGS, CREDIBILITY, CREDIBILITY PROBLEMS, CREDIT BUREAU, CREDIT DEFAULT, CREDIT DEFAULT SWAP, CREDIT EXPANSION, CREDIT HISTORIES, CREDIT MARKET, CREDIT MARKETS, CREDIT RISK, CURRENCY BOARD, CURRENT ACCOUNT DEFICITS, DEBT, DEBT CRISIS, DEBT LEVELS, DEBT OUTSTANDING, DEBT SERVICE, DEBT SERVICING, DEBTS, DEFAULT RISK, DEFAULTS, DEMAND-SIDE FACTORS, DEPOSIT, DEPOSITS, DEVALUATION, DEVALUATIONS, DOLLAR BOND, DOLLAR BOND MARKETS, DOMESTIC CURRENCY, DOMESTIC INTEREST RATES, EMERGING MARKET, EMERGING MARKETS, EUROBOND, EXCHANGE RATE, EXCHANGE RATES, EXTERNAL DEBT, FEE INCOME, FINANCIAL CRISIS, FINANCIAL INSTITUTIONS, FINANCIAL MARKET, FINANCIAL MARKETS, FINANCIAL STRESS, FISCAL DEFICIT, FIXED EXCHANGE RATE, FIXED INTEREST, FIXED INTEREST RATES, FLEXIBLE EXCHANGE RATE, FOREIGN BANK, FOREIGN BANKS, FOREIGN CURRENCY, FOREIGN CURRENCY LOAN, FOREIGN CURRENCY LOANS, FOREIGN CURRENCY RISK, FOREIGN DEBT, FOREIGN EXCHANGE, FOREIGN EXCHANGE RISK, FOREIGN INDEBTEDNESS, FOREIGN LENDER, FOREIGN LENDERS, FOREIGN MARKET, GRACE PERIODS, GROSS DOMESTIC PRODUCT, HOLDINGS, HOME FINANCING, HOST COUNTRY, HOUSING FINANCE, INCOME GROWTH, INFLATION, INFLATION RATE, INFLATION RATES, INSTITUTIONAL DEVELOPMENT, INSTRUMENT, INSURANCE, INSURANCE PRODUCTS, INTEREST RATE, INTEREST RATE DATA, INTEREST RATE DIFFERENTIAL, INTEREST RATE DIFFERENTIALS, INTEREST RATE PAYMENTS, INTEREST RATE POLICIES, INTEREST RATE RISK, INTEREST RATES, INTERNATIONAL FINANCIAL INSTITUTION, INTERNATIONAL FINANCIAL STATISTICS, INTERNATIONAL MARKETS, INTERNATIONAL SETTLEMENTS, INVESTMENT BANKS, INVESTMENT VEHICLE, LACK OF TRANSPARENCY, LENDER, LENDERS, LEVEL OF DEBT, LEVEL OF INTEREST RATES, LEVEL OF RISK, LIQUID MARKETS, LIQUIDITY, LIQUIDITY CONSTRAINTS, LIQUIDITY CRISIS, LIQUIDITY PROBLEMS, LIQUIDITY RISK, LIQUIDITY RISKS, LOAN, LOAN BALANCE, LOAN MARKET, LOAN PRODUCT, LOAN PRODUCTS, LOAN RATES, LOAN REPAYMENT, LOAN REPAYMENTS, LOAN VOLUMES, LOANS TO INDIVIDUALS, LOCAL BANK, LOCAL BANKS, LOCAL CURRENCIES, LOCAL CURRENCY, LOCAL LENDER, LOCAL LENDERS, MARKET COMPETITION, MARKET DEVELOPMENT, MARKET INDICES, MARKET INTEREST RATES, MARKET LIQUIDITY, MARKET PRACTICES, MARKET SHARE, MARKET SHARES, MATURITIES, MATURITY, MAXIMUM MATURITY, MONETARY POLICIES, MONETARY POLICY, MONEY MARKET, MONEY MARKET RATE, MORTGAGE, MORTGAGE BOND, MORTGAGE BONDS, MORTGAGE FINANCE, MORTGAGE INTEREST, MORTGAGE INTEREST RATE, MORTGAGE INTEREST RATES, MORTGAGE LOAN, MORTGAGE LOANS, MORTGAGE MARKET, MORTGAGE MARKETS, MORTGAGES, NATIONAL BANK, NONPERFORMING LOAN, NPL, OUTSTANDING LOAN, PAYMENT DEFAULTS, PERSONAL LOANS, PORTFOLIO, PORTFOLIO PERFORMANCE, PORTFOLIOS, PROBABILITY OF DEFAULT, REAL EXCHANGE RATES, REAL INTEREST, REGULATORY FRAMEWORK, REPAYMENT, REPAYMENT PERIOD, RESIDENTIAL MORTGAGES, RISK FACTORS, RISK MANAGEMENT, RISK OF DEFAULT, RISK PROFILES, RISK SHARING, SAFETY NET, SAVINGS BANK, SAVINGS BANKS, SHORT-TERM INTEREST RATE, STATE GUARANTEES, SWAP MARKET, SWAPS, TAX, TAX BENEFITS, TAX DEDUCTIONS, TAX INCENTIVES, TRANSACTION, TRANSITION COUNTRIES, TRANSITION ECONOMIES, TRANSITION ECONOMY, UNIVERSAL BANKS, VARIABLE RATE,
Online Access:	http://documents.worldbank.org/curated/en/2012/12/16357477/regulation-foreign-currency-mortgage-loans-case-transition-countriesbrin-central-eastern-europe https://hdl.handle.net/10986/12943
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