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Determinants of the Pricing of Bank Loans: a Structural VAR Based Analysis

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  • Pitz, Mónika
  • Schepp, Zoltán

Abstract

In the last decade foreign currency indebtedness in Hungary has become a systemic financial problem, which also has a crippling impact on the real economy through its income and lending effects and has a significant constraining impact on economic policy. Besides the exchange rate the interest rate was also an important factor in determining the burden of households. Our research focuses on the causes and determinants of the pricing of Swiss franc denominated mortgage loans. In our consideration, basically four main price shocks affected the pricing of credit institutions: higher foreign currency rates and risk premia, deterioration of loan portfolio quality and the extra taxes imposed on banks. The question arises how these costs are related to the evolution of the interest rates and to what extent these cost shocks were passed on by banks to clients. Using a structural vector autoregressive model we found that the interest rates on housing loans were influenced by all of these cost shocks. Based on the findings of our empirical research, all four shocks had a profound impact on the interest rates on housing loans; in other words, bank sector cost shocks were indeed passed on to the interest rates applied by domestic banks.

Suggested Citation

  • Pitz, Mónika & Schepp, Zoltán, 2013. "Determinants of the Pricing of Bank Loans: a Structural VAR Based Analysis," Public Finance Quarterly, Corvinus University of Budapest, vol. 58(4), pages 420-433.
    • Handle: RePEc:pfq:journl:v:58:y:2013:i:4:p:420-433
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    File URL: https://unipub.lib.uni-corvinus.hu/8941/
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    References listed on IDEAS

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    1. Erdős, Tibor, 2010. "Forintárfolyam, kamatszint és devizaalapú eladósodás. Az árfolyam szerepéről [Forint exchange rates, interest levels and foreign currency-based debt. The role of the exchange rate]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(10), pages 847-867.
    2. Gábor Szigel & Péter Fáykiss, 2012. "The effect of indebtedness on the financial and income position of Hungarian households," MNB Bulletin (discontinued), Magyar Nemzeti Bank (Central Bank of Hungary), vol. 7(1), pages 27-42, February.
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    Cited by:

    1. Novák, Zsuzsanna & Vámos, Imre, 2017. "Conversion of Foreign Currency Loans in the CEECs," Proceedings of the ENTRENOVA - ENTerprise REsearch InNOVAtion Conference (2017), Dubrovnik, Croatia, in: Proceedings of the ENTRENOVA - ENTerprise REsearch InNOVAtion Conference, Dubrovnik, Croatia, 7-9 September 2017, pages 66-73, IRENET - Society for Advancing Innovation and Research in Economy, Zagreb.

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    More about this item

    Keywords

    mortgage loans; pricing; Swiss franc denominated loans;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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