DP13923 Foreign currency loan conversions and currency mismatches
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.