The Financial Market Authority (FMA) and the Oesterreichische Nationalbank (OeNB) have published a joint information folder warning of the risks of foreign currency loans. “Whilst businesses are showing increasing restraint, the upward trend among households continues unabated,” says Andreas Ittner, Director of the section Financial Institutions and Markets (OeNB). Currently, foreign currency loans worth €53 billion have already been issued to domestic customers, €33 billion of which is accounted for by households. “Around 60 per cent of these loans to private customers are being taken out as long-term mortgages, and more than two thirds are loans with a single, fixed maturity date and repayment vehicle,” according to FMA Executive Director Kurt Pribil. “This trend in Austria gives cause for concern that private borrowers in particular are unaware of all of the risks and consequences,” says Ittner. Pribil adds, “In particular, people seem to be unaware of the cumulative risks involved and of the implications this might have, especially if you consider the length of the financing.”
This has prompted the FMA and OeNB to continue raising awareness of the risks of foreign currency loans by publishing an information folder. With the backing of the Austrian Federal Economic Chamber, 300,000 folders containing information about the risks of foreign currency loans will be sent to Austrian credit institutions over the next few weeks. “We are delighted and grateful that the banking industry is working with us on this important initiative, enabling us to target consumers in the most efficient way – at the counter, when they enquire about financing of this kind,” agree Ittner and Pribil.
The information folder contains clear, concise and coherent information about the main risks associated with foreign currency loans: fluctuating interest rates, exchange risk, repayment vehicle risk and the risk of unplanned costs, which mustn’t be underestimated. Using graphic examples, the folder also illustrates the financial consequences of a risk of this kind becoming reality.
In a liberalised banking market, the solution cannot lie in prohibiting certain products,” says FMA Executive Director Kurt Pribil. “But it also goes without saying that this obliges us to provide households in particular with objective and comprehensive information about the risks associated with certain products.”
Owing to the major significance of foreign currency loans in the financing of households and businesses, Austria has assumed a special role within Europe. But stress tests have shown that its strong capital base would enable the banking system as a whole to withstand any shock triggered by foreign currency loans. FMA Executive Director Pribil emphasised that the minimum standards for foreign currency loans and loans with repayment vehicles published by the FMA in 2003 are already showing positive effects, “They are being implemented, they are being observed, from their point of view, the banks are on top of the risks. It is even more important to make consumers aware of the risks they are taking.” “Unfavourable fluctuations in exchange and interest rates could mean rapidly rising costs for households in particular compared with European loans,” says Ittner.
“At the end of the day, any foreign currency loan is nothing more than currency speculation. The information folder goes a long way to raising borrowers’ awareness of the risks involved,” conclude Ittner and Pribil.
For further information please contact
Klaus Grubelnik (FMA Media Spokesperson)
+43/(0)1/24959-5106
+43/(0676)/882 49 516