Foreign currency loans are financing arrangements taken out in a foreign currency. They are highly speculative products and are not suitable for private households. It is not possible to predict how the current advantage of the foreign currency will deliver in terms of interest rate or exchange rate. It is not possible to know with full certainty about how the risks associated with a foreign currency loan will develop.
The International Monetary Fund, the Oesterreichische Nationalbank and the Austrian Financial Market Authority (FMA) have always warned about the special risks that exist 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 tightened its Minimum Standards for Foreign Currency Loans and Loans with Repayment Vehicles on several occasions (in 2010, 2013, 2017).
These FMA Minimum Standards stipulate 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 a 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. They are required, among other measures, to
FMA Focus on Foreign Currency Loans