Working Paper: CEPR ID: DP13923
Authors: Andreas M. Fischer; Pinar Yesin
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: loan conversion programs; emerging markets; currency mismatch
JEL Codes: F15; F21; F32; F36; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| loan conversion programs (H81) | Swiss franc mismatch index (F31) |
| loan conversion programs (H81) | other foreign currency mismatch index (F31) |
| Swiss franc mismatch index (F31) | systemic exchange rate risks (F31) |
| conversion from Swiss francs to euros (F31) | euro mismatches (F31) |
| government-sponsored conversion programs (J68) | reductions in mismatches (C52) |