Foreign Currency Loans Research Articles

Why do Indian exporting firms borrow in foreign currency?

Purpose Since the liberalization policy of 1991, India has focused on export-led growth. However, the performance of international trade remains poor. This study aims to examine the role of credit constraints on the choice of Indian manufacturing firms to borrow in foreign currency. First, it explores the role of export activities in foreign currency borrowing (FCB). Second, it investigates how credit constraints forced these firms for foreign currency loans. Design/methodology/approach The study analysed data from 1,412 firms listed on the Bombay Stock Exchange in the manufacturing sector, covering the period from 1991 to 2022. A random effects probit model was used to examine the role of credit constraints on FCB, incorporating the influence of micro, small and medium enterprises (MSMEs) status and export activities. Additionally, a two-step system-generalized method of moment was used for robustness checks. Findings Export activities significantly influence FCB, with exporting firms showing a higher propensity to borrow foreign currency compared to domestically operating firms because of the increased funding needs of export activities. Larger firms are more likely to secure FCB than MSMEs, benefiting from collateral advantages. MSME exporting firms exhibit a higher tendency to borrow in foreign currency compared to large exporting firms. Research limitations/implications This study focuses on firm-level data and considers only demand-side credit constraints. It does not examine supply-side credit constraints affecting FCB. Social implications This study underscores the credit constraints faced by MSME exporters in the domestic market, leading them to rely on FCB. These insights are valuable for policymakers aiming to reduce MSMEs' dependency on FCB and enhance their export performance. Originality/value The findings highlight that MSME exporting firms are more inclined to borrow in foreign currency than their larger counterparts. This tendency is driven by the credit constraints MSMEs face because of asymmetric information and underdeveloped financial markets, which compel them to seek FCB.

Unfair banking practices, or the theoretical and practical importance of operational risk management nowadays.

Nowadays, the management of operational risks in banking ̶ in particular conduct risks ̶ is becoming an increasingly important part of risk management. The financial crisis of 2008 and partly related to it, the Hungarian foreign currency loan crisis, have highlighted on the importance of this. Both crises were triggered, besides other reasons, by unfair banking practices and by the failure to respect the principle of fair banking. In my research I am looking for answers to the question to what extent can be considered unfair banking practices if banks impose several financial products on their customers, such as insurance and overdraft facilities, which they do not need. I will also examine to what extent the customers are aware of the fact, that they get a linked product and what it means for them in terms of risk-taking. My research consists of several parts. Firstly, I define operational and conduct risks. After that focusing on Hungary, I will examine the sales and commercial banking practices that played a role in the development of the foreign currency loan crisis, with a particular focus on the conduct risks. I will define what can be considered unfair banking practices. At the end of my theoretical overview I take into consideration why the linked products sold by today's Hungarian financial institutions are problematic and how information asymmetry drives a wedge between the bank and the customer. I also conduct primary research in the course of my research. Using an online questionnaire, I investigate the choice between current account structures of the Hungarian adult population. The results are analysed by using statistical methods.

Does foreign currency borrowing make firms vulnerable? Experience of emerging India

The Asian Financial Crisis during the late 1990 s revealed the fault lines of foreign currency loans of corporates. It starkly demonstrated that a combination of semi-pegged exchange rates and unregulated foreign currency borrowing could expose corporates and, subsequently, the entire economy to heightened vulnerability. To mitigate these risks, implementing certain capital account restrictions emerged as a potential remedy. Against this backdrop, this paper investigates the changing contours of vulnerability arising from the rising foreign currency leverage of 818 non-financial corporates in India during 2004–2022. In particular, this paper examines the impact of exchange rate shocks and changes in certain key macroeconomic policy variables on the financial vulnerabilities of these firms. Our findings unequivocally indicate that during exchange rate depreciation, unhedged exposures significantly amplified the vulnerability of Indian firms. While our study centres on India, the overarching conclusions and insights derived from our analysis possess broader ramifications for emerging economies grappling with capital account restrictions. The policy implications of our research underscore the need to proactively strengthen the macroprudential toolkit to address the risks associated with foreign currency borrowing and ensure more robust risk management practices to prevent the buildup of systemic vulnerabilities.

The Interplay Between the CJEU and National Courts in the Case Law on Unfair Contract Terms in Foreign Currency Loans: A Comparative Overview

Abstract Over the years, the UCTD has become one of the core EU directives aiming at the protection of both businesses and consumers (B2C), i.e., at the achievement of the appropriate balance between the parties’ rights and obligations. However, the UCTD has also left quite a number of important legal questions unanswered. Besides the general clauses on the assessment of the unfairness of contractual terms, there remains a high degree of uncertainty as to the meaning of the transparency requirement and the legal consequences of unfair contractual terms. As a result, in spite of CJEU settled case law, as well as European Commission interpretation guidelines, there are diverging patterns in the national case law of the Member States. The aim of this paper is to investigate these diverging patterns by looking more closely into national case law and into the relationship between the CJEU and the Member States courts, taking as a case study the way in which the UCTD was applied in five countries (Austria, Croatia, France, Italy and Poland) in cases involving consumer loans indexed to the Swiss franc. The survey shows that there are noticeable differences in the interpretation of core concepts underlying the UCTD, such as the unfairness test, the exclusions from the unfairness assessment, and the transparency requirement. The most problematic areas, however, concern the legal consequences of the unfairness of contractual terms. By relying on the analysis of these and related issues, the authors have come to the conclusion that347 even after 30 years of the existence of the UCTD, there are still many important legal questions that need solving.

Credit support for the development of the transport complex of the national economy and its sectoral differentiation

It was established that the specific weight of bank loans granted to the transport complex of Ukraine in the overall national economy is insignificant - about 3%. The largest share of bank loans in the sectoral portfolio was issued to warehousing and auxiliary activities. The second place is occupied by ground and pipeline transport, the third place is air transport. The share of water transport is negligible. The intensity of the use of loans in foreign currency is the greatest in warehousing and auxiliary activities, much less in aviation, land and pipeline transport. It was established that the share of non-performing loans in the transport complex is quite high, but smaller than in the national economy, in the national currency it is higher compared to the national economy, and in the foreign currency it is much lower. The specific weight of non-performing loans is the largest in warehousing and auxiliary activities, average - in land and pipeline transport, insignificant - in air transport, negligible - in water transport. Analysis of loans to the transport complex in terms of banking institutions made it possible to establish their exponential distribution and high concentration. TOP-3 state-owned banking institutions account for more than half of the value of loans and almost 90% of non-performing loans. TOP-14 banking institutions present almost the entire credit portfolio of the transport complex. It has been proven that one of the reasons for the high level of non-performing loans in the transport complex is the defects in assessing the creditworthiness of borrowers in the industry. Unlike other sections, a separate discriminant model was not built for section H - Transport, warehousing, postal and courier activities. The use of a single aggregated model for the transport complex and twelve other types of economic activity distorts the assessment of the borrower's creditworthiness, since the sectoral conditions of business in them differ significantly. It is proposed to build an individual model of the integral assessment of the borrower's creditworthiness according to section H with differentiation by sub-sectors.

Navigating through turbulence: Jet Airways’ acquisition failure and recapitalisation strategy

Learning outcomes The case aims to understand and analyse the capital structure decisions made by a profit-making, growing organisation which aimed to be India’s premier airline and the market leader. The company that had pursued a high debt policy, to take advantage of the financial leverage that it would get, was now facing problems in an operating environment that proved to be challenging. A decline in operating profit, coupled with high-interest costs and an uncertain environment with cutthroat competition, had caused the company to plunge into losses. Attempts to deleverage by equity infusion were proving to be difficult. The case can be used in MBA, Executive Education and doctoral programmes. The learning objectives of this case are: to analyse the capital structure of the company, to interpret the relationship between financial leverage and risk, to assess the pecking order theory, to analyse the nuances of the aviation sector and the factors influencing the profitability of the companies in the aviation industry, to estimate the risks and the rewards associated with foreign currency loans, to evaluate the magnifying impact of the financial leverage and to propose deleveraging methods like sale and leaseback, debt conversion to equity and devise a revival strategy for the company. Case overview/synopsis The case discusses the dilemma faced by Naresh Goyal, promoter and chairman of Jet Airways (India) Limited. At the initial stage, Jet Airways, like many other companies in its growth phase, relied on borrowed funds to meet its investment needs. However, over-reliance on borrowed funds with just one equity infusion resulted in a high leverage ratio and an aggressive capital structure. Moreover, the company operated in a sector that was highly regulated, with competition that was cutthroat and a cost structure that was volatile. A high operating risk, coupled with high financial leverage, pushed the company into incurring losses. Having run out of cash, Jet Airways eventually defaulted on loan repayments to its lenders. Facing the eventuality of losing control of the company to lenders or to a strategic investor, Goyal was trying to figure out a way to save the company from insolvency and liquidation. It was becoming increasingly difficult for Goyal to keep Jet Airways, the company he had nurtured like a baby, airborne. Complexity academic level The case can be taught in both online and offline modes of delivery in a 90-minute session. Post-covid, the delivery mode of classes has changed. In online sessions, it may be a challenging task to ensure student participation. Supplementary material Teaching notes are available for educators only. Subject code CSS 1: Accounting and Finance.

Current status and instruments for decreasing the dollarization of the monetary and credit sphere of Kyrgyzstan

Subject. The article considers approaches to revealing the essence and role, preconditions and consequences of dollarization of the economy of Kyrgyzstan, and measures taken by the monetary regulator for lowering the dollarization level to decrease the dependence of the national economy on the financial system of Western countries and reduce losses in currency conversion. Objectives. The aim is to unveil the inconsistency in the assessment of the dollarization role, clarify its classification, identify preconditions, main factors and trends of dollarization in the Republic of Kyrgyzstan, disclose measures taken by the regulator of the monetary system to reduce it, and assess their effectiveness. Methods. The study rests on methods of scientific knowledge, comparison and generalization, analytical and statistical techniques, and method of coefficients. Results. The paper discloses crucial aspects of the discussion about advantages and disadvantages of the current dollarization of national economies, systematizes its types, identifies the most important factors influencing this process. The analysis of trends and reasons demonstrated that reducing inflation does not always solve the problem of dollarization. I describe measures taken by the monetary regulator and aimed at decline in dollarization, assess the results of their implementation in the Republic of Kyrgyzstan. Conclusions. The measures taken by the National Bank of the Kyrgyz Republic (a ban on mortgage and consumer loans in foreign currency, on setting prices in conventional units, introduction of differentiated reserve requirements, etc.) contributed to a decrease in the level of dollarization, mainly in terms of the credit base. They can be used by banking regulators of other countries, including the EAEU, which announced the coordination of their monetary policies and expansion of the use of national currencies in mutual settlements.

Foreign Currency Loans and the Foundations of European Contract Law – A Case for Financial and Contractual Crisis?

Abstract Loans with variable interest rates indexed to foreign currencies carry a double risk for borrowers: a rise of interest rates and an adverse development in the exchange rate. While they therefore could have been forbidden for consumer credit, they are allowed both at EU and (most) national levels. Consumer credit arrangements indexed to foreign currencies that were legal in principle have raised enormous problems when they occurred in large numbers in Eastern and Central European countries and reference was not directly written into the terms (like in Romania), but could change with additional discretionary decisions (such as in Poland and Croatia). While Croatia has introduced special legislation to cure the overall problem, Polish cases are potentially not only causing a systemic risk for the2 whole banking system, but abundantly are the subject of CJEU case law. This triggers the core interest in contract law, namely an unheard-of relevance in EU law of general and more specific questions of the law of restitution – on the basis of unjust enrichment and/or of damages. This article presents the following five main theses. Firstly, while the Unfair Contract Terms Directive (UCTD) contains too vague a scheme of remedies/sanctions for detailed answers, the overarching benchmark is clear, namely a fair balance of interests and the meeting of justified expectations, which the parties, especially on the consumer side, could have had at the moment when the loan was issued. Secondly, general (EU) principles of unjust enrichment, as well as of damages, are recognised by the CJEU in EU law. They order the restitution of what was gained above the status quo ante, but could not have been acquired on markets even by informed and proper contracting at that time and/or the restitution of losses incurred as compared to the status quo ante. Thirdly, Articles 23 and 24 of the Mortgage Credit Directive (MCD) constitute a suitable model around which a set of claims in unjust enrichment can be shaped and can be applied also to old cases. Fourthly, any windfall profit of borrowers (gain beyond what could have been achieved at the moment of formation of the contract) has to be avoided in the name of fairness and justified expectations – which are recognised in CJEU case law as the two main benchmarks of the regime of sanctions of the UCTD. Finally, a fair restitution regime is reached if the borrower, who had not been properly informed (with the nullified clause), can now make an informed choice between the different offers that were offered on markets when the loan was issued. Thus, he/she could now opt for a loan in either the national currency plus applicable interbank interest rate (in the Polish case Zloty tied to WIBOR) or their foreign currency counterparts (i.e. a loan in CHF tied to LIBOR). Expropriation (of banks) of the loan capital, as well as the possibility to use that capital to generate interest have to be avoided, for penalisation is neither an aim of European contract law nor of the UCTD.

БАНКІВСЬКЕ ОБСЛУГОВУВАННЯ ЗОВНІШНЬОЕКОНОМІЧНОЇ ДІЯЛЬНОСТІ ПРОМИСЛОВИХ ПІДПРИЄМСТВ

Within the scope of banking services for the foreign economic activities of industrial enterprises, commercial banks keep funds in foreign currencies of such enterprises in current and deposit accounts, lend to the export and import activities of such enterprises, carry out international settlements, documentary, currency exchange operations, etc. The article examines the features of banking services for industrial enterprises at the current stage and defines its prospects and tools in the post-war period. It has been established that industrial enterprises try to keep cash balances in foreign currency in the most liquid form, so they either remain in current accounts or are converted into short-term deposits with a term of up to 1 year. Lending in foreign currency tends to decrease and is mostly short-term in nature. The main volume of loans in foreign currency is concentrated in the processing industry, in particular, half of them are in the food industry. As for long-term loans in foreign currency, they are concentrated on enterprises engaged in the supply of electricity, gas, steam and air conditioning, as well as enterprises of the metallurgical industry. Lending in US dollars is concentrated in the manufacturing industry, while lending in euros is predominant for enterprises engaged in the supply of electricity, gas, steam and air conditioning. There is practically no lending in other currencies. It is proposed to expand banking products of JSC "PUMB" for financing foreign economic activities of industrial enterprises through cooperation with international financial institutions, other domestic and foreign banks, leasing companies. Currently, servicing the foreign economic activities of industrial enterprises is not a priority area of activity, as JSC "PUMB" is reorienting itself to the retail segment and lending to agricultural producers, but in the conditions of post-war reconstruction, we believe that lending to industrial enterprises, in particular in a consortium with foreign banks and international financial organizations, should become one from strategic priorities.

Залучення боргових фінансових ресурсів на зовнішньому ринку: досвід України

The current macroeconomic and political situation in Ukraine is characterized by instability and impact of a number of adverse factors. In such circumstances, Ukraine's debt relations are focused on the increased need to attract financing. At the same time, because of the ongoing war, Ukraine's expenses are constantly and rapidly growing. The revenue side of the budget under such conditions is limited. Today it is impossible to adhere to the chosen strategic benchmark – reducing the share of the external public debt and loans in foreign currency. The article is aimed at studying the practical aspects of attracting financing by Ukraine in the foreign market with an emphasis on the problems accompanying this process. The article examines the main indicators of attracting financial resources in the foreign market, the structure of Ukraine's debt in terms of currencies, as well as an overview of the risks that accompany the current debt situation. The primary task of Ukraine's debt policy is to optimize the attraction of financial resources in the foreign market within the security corridors. Taking into account the experience of attracting financial resources both in the domestic and foreign loan capital markets will allow defining the existing problems and identifying the directions for optimizing the attraction of such financing in the current crisis. Despite the significant need for financing and limited opportunities to attract resources in the domestic market, it is proposed to limit the use of external sources. In the current period, it is proposed to focus on restructuring the existing debt and finding opportunities to attract soft lending programs. Further, in the postwar period, a clear and flexible debt policy should be formed with the definition of quantitative benchmarks for Ukraine's debt security. However, prospects for solving Ukraine's debt problems will appear only after the settlement of the political situation in the country.

FEATURES OF RECEIVING, ACCOUNTING AND AUDIT OF LOANS IN FOREIGN CURRENCY AT THE ENTERPRISE

The article is devoted to the features of receiving, accounting and auditing of a loan in foreign currency at the enterprise. The topicality of the topic is explained by the fact that ensuring the sustainable development of enterprises requires adequate financing at the expense of various components of equity capital, borrowed capital and loan capital, including lending in foreign currency. the share of balances for loans granted in foreign currency was 29% of the loan portfolio of commercial banks in 2021. This indicates the presence of lending in foreign currency and the need for research and scientific substantiation of the mechanism for obtaining, clearing and auditing loans in foreign currency. The object of the study is crediting, accounting and auditing in foreign currency at the enterprise. The purpose of the study is to substantiate the peculiarities of obtaining, accounting and auditing foreign currency loans at the enterprise to ensure complete and reliable information about the financial obligations of the enterprise. The methods of the study are analysis and synthesis, system analysis, statistical analysis to study the dynamics and structure of loans granted to enterprises by commercial banks in foreign currency, the dynamics of average annual interest rates on loans granted to enterprises. Conditional periods based on indicators of balances of funds for loans granted in foreign currency and the share of loans in foreign currency in the credit portfolio of commercial banks are determined. The first conditional period of development of lending in foreign currency lasted until 2008. It is characterized by a high and constantly growing demand for loans in foreign currency; the share of balances on loans granted in foreign currency was 59% in 2008, a decrease in the exchange rate and low interest rates for using loans in foreign currency against the national currency. The second conditional period of development of foreign currency lending began during the financial crisis of 2008. It is characterized by a 5 times decrease in the balances of loans granted in foreign currency due to the introduced institutional restrictions. Features of lending in foreign currency are determined. The sequence of audit stages of crediting in foreign currency at the enterprise has been developed. Conclusions – despite the institutional restrictions on lending in foreign currency introduced after the financial crisis of 2008, business entities form demand for loans in foreign currency from residents and non-residents. Accounting for loans in foreign currency has certain features and complexity compared to accounting for loans in national currency. Correspondence of accounting accounts for loans received in foreign currency according to typical operations: receiving a loan in foreign currency, accrual and payment of interest for using the loan, repayment or extension of the loan in foreign currency, revaluation of the loan in foreign currency and display of exchange rate differences.

Compulsory reserve instrument and foreign currency interest policy of commercial banks in Uzbekistan

This article analyzes the mandatory reserve instrument from monetary policy instruments. Based on the selected indicators, the SVAR model was formed on the impact of the mandatory reserve instrument on the interest policy of commercial banks. According to the results of the model, the mandatory reserve percentage for foreign currency deposits of legal entities has a strong effect on the percentage of short-term foreign currency deposits of the population in commercial banks. The statistical significance of the effect of this mandatory reserve norm on the percentage of short-term deposits of legal entities in commercial banks and on the percentage of loans in foreign currency allocated to them is low. Also, the impact of the devaluation of the national currency on the interest policy of commercial banks was insignificant. The reason for this is that commercial banks have not combined the constant devaluation indicator with the interest policy. On the contrary, the inflation rate had a high impact on the interest policy of commercial banks. Apart from the influence of the above endogenous indicators on the interest policy of commercial banks, the autocorrection of interest rates in commercial banks is becoming stronger.

ОЦІНКА КРЕДИТНОГО РИЗИКУ КОМЕРЦІЙНОГО БАНКУ В УМОВАХ КОРОНАКРИЗИ

The article carries out a thorough analysis of the essence of the concept of "credit risk", high-lights its causes and main features. The authors provide an analysis of the main indicators of the credit market of Ukraine, namely the dynamics of changes in credit risk factors. Such indicators include: the share of the loan portfolio in the assets of banks, the ratio of equity capital to the loan portfolio, the share of loans in foreign currency, the share of overdue loans and the share of non-performing loans, NBU credit risk standards and their compliance by commercial banks. Also, after the analysis, the au-thors proposed an organizational and economic mechanism of credit risk management, which contains such components as: methodical base, provision, levers and principles, indicators, resources, factors affecting credit risk, management and control bodies, the object and purpose of management. After that, the authors outline the main principles of its operation and recommendations for implementation. In general, for the implementation of the proposed mechanism, it is envisaged to finalize the regulato-ry and legal framework, conduct a flexible and adaptive credit policy to changes in the market situa-tion both at the level of the country and at the level of an individual commercial bank, and introduce a single broad information base for assessing all criteria of the solvency of each individual the borrow-er, development of an effective personnel policy of a commercial bank, provision of an independent, systematic and continuous assessment of credit risks in order to ensure the appropriate level of finan-cial stability of the bank.

Procjena profitabilnosti banke u evroizovanim ekonomijama

Financial euroization is a significant phenomenon in developing countries. The key financial institutions for macroeconomic stability in these countries are the banks. Conversion of most of the financial assets and liabilities into foreign currency creates a currency mismatch between the assets and liabilities in domestic and foreign currency. Banks in the role of intermediaries between depositors and borrowers face the risks of accepting foreign currency deposits and placing foreign currency loans. With this, financial euroization can impact the performance of banks. The paper's main objective is to analyze the impacts of euroization on the performance of banks in North Macedonia, Serbia, and Bosnia and Herzegovina for the period from 2010 to 2020. For performance measure, we use bank profitability. The paper uses a pre-set empirical model, in which the dependent variable is ROA (annual data for the return on assets - as a variable for measuring the profitability of banks) and a set of independent variables, including the degree of euroization. The results suggest that the model is robust, and the variables are statistically significant. In conclusion, this outcome can be ascribed to the segmentation of the bank credit portfolio in credit denominated in domestic versus foreign currency credit denomination. Moreover, the degree of euroization proved to be statistically significant for predicting the performance of banks, hence is high bank management decision-making information.

FORMATION OF A QUALITY CREDIT PORTFOLIO OF UKRAINIAN BANKS: STATE AND STRUCTURE OF THE CREDIT PORTFOLIO OF PRIVATBANK JSC BY DIFFERENT SECTORS OF THE ECONOMY

The purpose of the article is to consider the state and structure of the credit portfolio of JSC CB "PrivatBank" in various sectors of the economy. Analyzing the financial indicators, it has been proven that one of the priority directions in the activities of this Bank is the development of lending while maintaining the high quality of the loan portfolio. The Bank's strategic goal is to build a high-quality credit portfolio of retail and SME loans.As a result of the research, an analysis of the main analytical indicators of credit portfolio management was carried out, the structure of the credit portfolio and the structure of the credit quality of the bank's portfolio were determined during 2019–2021. The practical activities of JSC CB "PrivatBank" were studied and it was established that large loans granted to large enterprises mean big risks for the bank and its millions of depositors. But adhering to this balanced credit policy, the Bank still manages to increase its own credit activity, as evidenced by analytical calculations.To achieve the goal, the research used general scientific research methods: observation (systematic study of the bank, obtaining primary information in the form of financial reporting indicators for the analyzed period), comparison (comparison of the analyzed parameters, coefficients, balance sheet items with each other or with a basic indicator, normative value), abstraction (departure in the definition of categories from non-essential properties and selection of several essential characteristics), grouping method (when considering the classification of loans); various methods of statistical methods, in particular comparison - when comparing actual data for the relevant periods; observations were used to study and assess the financial condition of JSC CB "PrivatBank", methods of analysis and synthesis, induction and deduction.It has been analyzed and proven that the decline in business activity since the beginning of the full-scale war has led to a drop in business demand for loans. At the same time, the deterioration of macroeconomic expectations significantly reduced the risk appetite of banks. Accordingly, financial institutions have tightened lending standards for businesses. Therefore, the growth of the loan portfolio almost stopped: the amount of foreign currency loans decreased, while hryvnia loans increased several times slower than last year, and the hryvnia net corporate loan portfolio increased by 8% since the beginning of the full-scale war.Ways to solve the problems of improving and improving the quality of the bank's credit activity remain prospects for further research

Foreign currency loans and credit risk: Evidence from U.S. banks

When firms borrow in foreign currency and are not perfectly hedged, exchange rate changes can affect their ability to repay the debt. U.S. loan-level data show that a 10 percent depreciation of the local currency quarter-to-quarter increases the probability that a firm becomes past due on its loans by 42 basis points for firms with foreign currency debt relative to those with local currency debt. This increase is economically significant, given a baseline probability of 20 basis points, and indicates that exchange rate risk of borrowers can translate into credit risk for banks. Firms are more likely to borrow in foreign currency if they belong to industries that generate more income abroad and if a UIP deviation makes foreign currency loans cheaper. The paper establishes additional facts on large U.S. banks’ international corporate loan portfolios, offering a perspective complementary to that provided by syndicated loan data.

Keeping Up With the Novaks? Income Distribution as a Determinant of Household Debt in CESEE

This paper constitutes an initial attempt to shed light on the role of income distribution for household debt in Central, Eastern, and Southeastern Europe (CESEE). Using household‐level data from the OeNB’s Euro Survey for the period 2008–2018, we address the question whether interpersonal comparisons (“Keeping up with the Novaks”) are associated with the probability of having a loan and planning to take out a loan. Applying multilevel probit modeling to consider the hierarchical structure of the data, our results support the notion that higher income inequality is negatively correlated with the probability of having a loan at the bottom of the distribution, and positively at the top. We show this impact for almost all components of household debt, but evidence is strongest for mortgage and foreign currency loans. Loan plans are associated with income inequality at the very top of the income distribution.

Legal Effects of Unenforceability or Invalidity of an Agreement for a Denominated in or Indexed to a Foreign Currency Mortgage Loan in The Light of Judicial Decisions

An introduction of mortgage currency loans to the banks offers, particularly the indexed to a foreign currency and denominated in a foreign currency loans, based on agreements containing abusive clauses which lead, in the consumer/borrower's individual relations, to the violation of his legal and economic interest and on the financial system level to the creation the risk of its instability (systemic risk). In many European countries, in Hungary for instance, the problem was solved ex post on the statutory level by the legislator’s interference. In others, for example in Romania, such statutory solutions were contested by the constitutional courts. In the remaining ones, such as Poland, Spain or Austria, the problem was left to be solved within the individual cases by the civil or arbitration courts. The latter solution requires however the development of lines of jurisprudence solving the contentious legal issues resulting from the complicated legal relations that occurred between the banks and the consumers/borrowers. Given the above, the author undertook to analyse the judicial decisions of the European Court of Justice, Polish common courts and the Supreme Court in order to indicate these nodal issues which often evoke the discrepancies in jurisprudence, as well as to present the possible solutions. The importance of the issue is crucial not only to the economic condition of the households and financial results of particular banks, but also to the stability of the whole financial sector. The implementation of the research goal adopted in this article requires the application of legal research methods, such as in particular the general theoretical method and the formal-dogmatic method.

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 currency mismatches 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 existing high level of euro mismatches in the CEE banking system.

Macroeconomic factors that influence the bank loans rate in international and Ukrainian practice

The goal of the paper is to disclose the links between the dynamics of macroeconomic indicators and the level of bank loan rates based on international and Ukrainian practice. On the basis of the previous analysis, the paper also aims to identify the key trends in the formation of loan prices in the long run and identify problematic issues related to bank loan rates. The main characteristics of bank lending rates in Ukraine are: a) their high rates; b) sharp changes in the weighted average bank loan rates from year to year; c) higher loan rates for households compared to the cost of bank loans for businesses; d) higher bank loan rates for short- and medium-term loans versus long-term ones; e) lower rates on loans in foreign currency compared to the loans in hryvnia; and f) high share of non-performing loans to households and businesses in bank portfolios. In the context of world and Ukrainian practice, the paper demonstrates the reverse effect between macroeconomic indicators such as GDP per capita, the ratio of loans to GDP, the ease of doing business index and bank loan rates. The article also demonstrates a direct relationship between the dynamics of inflation rate in the country, the dynamics of non-performing bank loans and their rates.