Foreign currency loans risk and methods of its reduction on the polish financial market

Abstract

In the last several years currency loans have become one of the most important source of financing of households and enterprises in Poland. They are particularly used for real estates investments, where their prevalent form is a forward mortgage. In practice currency loans are long-term obligations which create significant risks such as: foreign interest-rate risk, fx risk, and spread risk within a few dozen years. Such risks can strongly influence the stability of whole Polish banking sector as well as financial market in Poland. As currency loans are mostly used by households there are very limited ways of managing the mentioned kinds of risk. Because the share of currency loans is at present still dynamically increasing in the banking system, the aim of this paper is to characterize mentioned loans and to present their significance in Poland, as well as risks related to them.In the last several years currency loans have become one of the most important source of financing of households and enterprises in Poland. They are particularly used for real estates investments, where their prevalent form is a forward mortgage. In practice currency loans are long-term obligations which create significant risks such as: foreign interest-rate risk, fx risk, and spread risk within a few dozen years. Such risks can strongly influence the stability of whole Polish banking sector as well as financial market in Poland. As currency loans are mostly used by households there are very limited ways of managing the mentioned kinds of risk. Because the share of currency loans is at present still dynamically increasing in the banking system, the aim of this paper is to characterize mentioned loans and to present their significance in Poland, as well as risks related to them.