Wednesday, June 20, 2007

Austrian Foreign Currency Lending

1995, approximately, marked the beginning of a broadly based boom in foreign currency lending to both businesses and households; the preferred currencies were the Swiss franc and, more recently and increasingly, the Japanese yen. Foreign currency-denominated loans accounted for more than half of the increase in Austrian banks lending to businesses and almost two thirds of the increase in lending to households between the end of 1995 and mid-2002. In this period, the amount of foreign currency loans outstanding rose more than fivefold, which equals an average annual growth rate of 29%.1) In several quarters, the foreign currency share of the net change in bank lending came to more than 100%, i.e. in these periods, on balance, schilling- or euro-denominated loans were converted into foreign currency loans. By mid-2002, 19.4% of banks loans to businesses and 24.1% of loans to households were denominated in a foreign currency, compared to 7.8% and 1.5%, respectively, at the end of 1995 (including the euro legacy currencies).

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Early in the boom, the bulk of foreign currency loans was taken out in Swiss francs; from about 1999 on, the Japanese yen gained in popularity, accounting for 42% of the total amount of foreign currency loans at mid-2002. Up to end-1998, lending in Deutsche mark also played a major role. Given the close trade links between Austria and Germany, it can be assumed that loans in Deutsche mark were extended primarily to enterprises, which also seem to have been virtually the sole borrowers of U.S. dollar-denominated funds in Austria. A comparison with currency shares in foreign trade shows that, by contrast, the bulk of Swiss franc- and Japanese yen-denominated loans is not used for external transactions.)

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