ESRB assesses the EU member states' lending in foreign currency
Date
08/11/2013
The European Systemic Risk Board (ESRB) has published an assessment of the implementation of its recommendation on lending in foreign currency. The recommendation was issued in October 2011.
The conclusions of the report are that the member states in the EU - including Sweden - are to a large extent following the recommendation. However, the ESRB notes that it is difficult to assess the effects of the recommendation, as there has been little issuing of new loans in foreign currency over a long period of time. The ESRB therefore proposes that a new assessment is made when economic activity in the EU has recovered.
The recommendation is aimed at reducing the risks associated with lending in foreign currency from financial institutions to households and companies. It is addressed to the national financial supervisory authorities (which in Sweden means Finansinspektionen), the European Banking Authority (EBA) and the EU member states.
The extent of lending in foreign currency varies among the EU countries. Particularly in certain central and eastern European countries, a significant portion of households and certain small and medium companies have large loans in foreign currency at the same time as their incomes are in the national currency. This means that these borrowers are vulnerable to unfavourable exchange rate fluctuations. A high proportion of lending in foreign currency may thus pose a threat to financial stability in the affected countries and even have contagion effects to other EU member states.
