Monday, July 19, 2010

Household FX Loans " Eastern Europe Edition"

Definitely a topic that won´t be included in any ( Austrian.... ) stresstest scenario.... Watching this Heat Map showing the foreign ( and mainly European ) bank presence in Eastern Europe i can understand why... ;-)

Mit Sicherheit ein Themenbereich der im "brutalst" möglichen Stresstest ( denke da besonders an Österreich ) keinerlei Beachtung finden wird....Wenn man sich auf dieser Heat Map den "nicht unwesentlichen" Einfluß der überwiegend europäischen Banken in Osteuropa ansieht, verwundert das wenig.... ;-)

BNP via FT Alphaville

[the forint] is under pressure and that around 70% of household loans in Hungary are FX loans (possibly either in swiss franc or euro), putting pressure on consumer balance sheets.

Now a special report only on CHF dominated loans..... You can do the math estimating the € share ( see next table )....

Nachfolgend eine Betrachtung der in CHF begebenen Kredite.... Daraus kann man die Summe in € in etwa ableiten ( siehe Tabelle )....

UBS via ZH

The total amount of outstanding Swiss franc loans to banks and non-banks rose from CHF 228bn in 1999 to CHF 558bn in the third quarter of 2008, before declining to CHF 488bn in 1Q 2010 (see Fig. 1).

To appreciate the magnitude of these figures, consider that the sum of these loans equals around ten times the sum of all Swiss banknotes in circulation (CHF 48 bn in May 2010), and that they are nearly equivalent to Switzerland's nominal GDP of CHF 535bn in 2009.

Further, the sum of franc loans abroad is equal to nearly 70% of the outstanding amount of loans in Switzerland (about CHF 723 bn in April 2010).

The CHF 488bn loans are roughly double the size of the SNB's foreign currency reserves. That means there is a large franc short position outstanding, which more than counterbalances the francs that the SNB has created with its current FX interventions.

Over the past decade, a growing number of foreign households and companies borrowed in Swiss francs to finance their local currency investments. Franc-denominated loans became popular in Austria and Eastern Europe owing to Switzerland's lower interest rates compared with their local currency loans. Moreover, the depreciation trend of the Swiss franc between 2003 and 2007 triggered demand for franc loans in Eastern Europe. As long as the franc weakened, demand for franc loans grew. And, for a time, mortgage payments denominated in francs (due to the weakening franc) became progressively less expensive. We suspect that many of these borrowers failed to anticipate the risk of rapid currency movements.

Since June 2010, the SNB no longer manages the exchange rate with interventions as it believes deflationary risks in Switzerland have largely disappeared. Since mid-June, the Swiss franc has appreciated sharply against all major currencies, which means that servicing franc-denominated debt has becomes increasingly expensive for foreigners.

Absolute amounts of CHF loans outstanding to non-banks: In the Eurozone, Austria has the highest amount with CHF 81bn, followed by Germany (CHF 60bn), France (CHF 30bn) and Luxembourg (CHF 25bn). Outside the euro area, Poland is the leader with about CHF 53bn, followed by Hungary (CHF 36bn), the UK (CHF 23bn), and Croatia (CHF 7bn).

•CHF loans outstanding to non-banks as a share of total loans: The highest share can be observed in Hungary (34%), followed by Poland (20%), Austria (14%), and Croatia (13%).

CHF loans outstanding to non-banks as a share of foreign-denominated loans: the highest share can be observed in Austria •(68%), followed by Poland (65%), Hungary (52%), and Croatia (about 18%).

•Romania and the Baltic states also have large shares of foreign currency-denominated loans, but they prefer the euro or US dollar (see Fig. 3).

Austrians have been borrowing in Swiss francs for more than 15 years (see Fig. 5), while eastern European countries started around 2004. As Hungary, Poland and Croatia have increased their Swiss franc loans aggressively in the last couple of years, the rapid appreciation of the franc and the weakness of their own currencies hurt borrowers in those three countries (see Figs. 6, 7, 8). New borrowers (who requested a CHF loan in 2007 and 2008), are affected more than earlier borrowers, as the latter took out Swiss-franc loans at lower exchange rates

In many cases, the rise of the franc will have lifted the value of the outstanding debt above the value of the asset(s) and made the credit/mortgage shaky.

At some point, franc borrowers might realize that the franc might stay strong for longer, which could induce them to switch their loans. While the franc is affected by many factors, should the borrowers of franc loans at some point decide to switch their loans into local currencies, it could support the franc further, as the borrowers have to unwind their franc short positions.
We therefore conclude that the large amount of outstanding Swiss franc loans to foreign countries remains a threat for the Swiss economy.
Unlike UBS i´m pretty sure that none of the borrowers cares about the stability of the swiss economy .... ;-)

Beim letzten Satz kann ich mir ein Schmunzeln nicht verkneifen... Bin mir ziemlich sicher das keiner der in Franken verschuldeten sich auch nur ansatzweise um die Stabilität der Schweizer Wirtschaft Sorgen macht.. ;-)

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