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Phasing out household foreign currency loans: schedule and framework

Author

Listed:
  • Pál Péter Kolozsi
  • Ádám Banai
  • Balázs Vonnák

    (Magyar Nemzeti Bank)

Abstract

Due to a peculiar constellation of demand, supply and institutional factors, Hungary faced the 2008 economic crisis with a massive portfolio of household foreign currency loans. After several measures to mitigate the exposure of households, the permanent solution of phasing out foreign currency and foreign currency based mortgage loans was achieved in 2014. In this article, we argue that at the time of conversion the legal and economic conditions reduced the unavoidable risks to a reasonable level, where the expected social and welfare benefits of the conversion offset such risks. The implementation of the conversion was made possible by the coordinated foreign currency sale programme of the MNB. Under the programme, the MNB provided a total amount of EUR 9.1 billion to the banking system in a coordinated fashion, while promoting banks’ cooperation and ensuring central bank FX reserve adequacy. Owing to the central bank’s programme, the conversion took place without significant impact on the forint exchange rate.

Suggested Citation

  • Pál Péter Kolozsi & Ádám Banai & Balázs Vonnák, 2015. "Phasing out household foreign currency loans: schedule and framework," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 14(3), pages 60-87.
    • Handle: RePEc:mnb:finrev:v:14:y:2015:i:3:p:60-87
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    References listed on IDEAS

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    Cited by:

    1. Fischer, Andreas M. & Yeşin, Pınar, 2022. "Foreign currency loan conversions and currency mismatches," Journal of International Money and Finance, Elsevier, vol. 122(C).
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    4. Pál Péter Kolozsi & Csaba Lentner, 2020. "Consolidation and Legacy of Foreign Currency Household Lending in Central and Eastern Europe: The Case of Hungary," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 14(3), September.

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    More about this item

    Keywords

    mortgage loans; financial stability; monetary policy; debt consolidation; conversion;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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