Adjusted for exchange rate effects, the outstanding volume of foreign currency loans (FX lending) to private households has fallen by € 29.49 billion or 63.8% up to 30 June 2017, since the introduction of the ban on granting of new loans in the autumn of 2008. The share of foreign currency loans in relation to all outstanding household loans fell to 12.8% during Q2 2017, a decrease of 2.8% year-on-year. At the foreign currency loan boom this share stood at 31.8%. These were the findings from the FMA’s Survey for the second quarter of 2017. “Our various initiatives to limit risks associated with FX loans have proved themselves to be sustainably effective,” remarked the FMA’s Executive Board, Helmut Ettl and Klaus Kumpfmüller. It must nevertheless be considered that around three quarters of foreign currency loans are in the form of bullet loans involving a repayment vehicle. The annual survey on repayment vehicles however shows a funding gap at maturity of 32 % or approx. € 6 billion.
Compared with Q2 2016, the volume of outstanding loans adjusted for exchange rate effects fell by € 3.23 billion or 14.5%. In the second quarter of 2017 alone, the volume fell by € 0.84 billion or 4.2%. In absolute terms, the volume of foreign currency lending to private households fell to € 18.74 billion in second quarter of 2017.
€ 6 billion funding gap for repayment vehicles
Of the loans outstanding as at the end of March to private households with repayment vehicles, with a volume of € 17.2 billion, 85% were denominated in foreign currencies (of which 96% were in Swiss Franc). To repay the debt from the loan at the end of its term, three quarters of repayment vehicles are invested in life insurance products, in particular in unit- and index-linked forms, that are fully exposed to the capital markets risk. The predicted funding gap at maturity for repayment vehicles of just under € 6 billion based on conservative assumptions has been fully covered by the banks by means of mortgage-backed securitisation on the basis of very prudent assumptions. However, from the borrower’s perspective this gap is clearly very difficult to close. An analysis of loans with repayment vehicles that matured in 2016 showed that,
· only in the case of one third of the total outstanding amount could the gap be covered by accrued financial wealth;
· that in one-fifth of cases the remaining funding gap had to be covered by a subsequent fresh loan denominated in Euro;
· that in 15% of cases the funding gap was closed by other measures such as one-off payments on existing repayment vehicles;
· in the remaining cases the loan with a repayment vehicle had its maturity extended or a combination of measures were used.
An analysis of the residual maturities of loans with repayment vehicles shows that € 10.2 billion of the still outstanding amount of € 17.2 billion are due at maturity in ten years’ time or longer. “Banks and borrowers are therefore encourages, in particular with regard to the predicted economic upturn, to undertake together the utmost effort to close any funding gaps as quickly as possible,” commented the FMA’s Executive Board. The recently revised FMA Minimum Standards on Foreign Currency Loans and Loans with Repayment Vehicles are of significant assistance to consistently reduce the risk.
High exchange rate risks
As of the end of June 2017, 96.2% of the volume of the amount owed for loans in foreign currencies was for loans denominated in Swiss franc (CHF), with the remaining amount almost exclusively in Japanese yen (JPY). A mere 5.2% of the volume of foreign currency lending is secured against exchange rate risks by means of hedging transactions or income or assets held in the foreign currency.
Journalists may address further enquiries to:
Klaus Grubelnik (FMA Media Spokesperson)
+43/(0)1/24959-6006
+43/(0)676/882 49 516