Foreign currency loans
The International Monetary Fund (IMF), the Oesterreichische Nationalbank (OeNB) and the Austrian Financial Market Authority (FMA) have always warned of the particular risks in relation to foreign currency loans. The Global Financial Crisis dramatically proved how quickly such risks can materialise. In order to limit the risks arising from foreign currency loans both for banks as well as for borrowers, the FMA has therefore considerably strengthened its Minimum Standards for Foreign Currency Loans and Loans with Repayment Vehicles on several occasions (in 2010, 2013 and 2017).
These FMA Minimum Standards set out that foreign currency loans are no longer allowed to be offered as a standardised product for the masses. Moreover, it is also explicitly stated that foreign currency loans are not suitable instruments for private households for financing the purchasing of residential property. The granting of financing in foreign currency in the form of a bullet loan connected to a capital accumulating repayment vehicle was prohibited. In order to limit the risks emanating from existing foreign currency loans for banks and for borrowers, the banks agreed with the supervisors to develop appropriate strategies to reduce the outstanding volume of such loans in a sustainable manner and ahead of schedule. To this end, they are required, among other measures, to
- constantly monitor the risk development over every foreign currency loans – as well as the performance of the repayment vehicle – and to inform customers about any deterioration in risk exposure;
- send out information letters once the residual maturity is seven years or less, and have a meeting with the customer and to draw up individual solutions together for the limitation of risks;
- provide the customer at any time with relevant alternative offers for the conversion of the loan into a Euro-denominated loan.
For further information please consult the FMA’s information brochure on foreign currency loans (available in German only) and the Frequently Asked Questions.