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Title: Foreign currency loan conversions and currency mismatches

Author(s): Andreas M Fischer and Pinar Yesin

Publication Date: August 2019

Keyword(s): currency mismatch, emerging markets and Loan conversion programs

Programme Area(s): International Macroeconomics and Finance

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.

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Bibliographic Reference

Fischer, A and Yesin, P. 2019. 'Foreign currency loan conversions and currency mismatches'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13923