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Article

Troubles with the Chf Loans in Croatia: The Story of a Case Still Waiting to Be Closed

Faculty of Economics, Business and Tourism, University of Split, Cvite Fiskovića 5, 21 000 Split, Croatia
Academic Editor: Stefano Zedda
J. Risk Financial Manag. 2021, 14(2), 75; https://doi.org/10.3390/jrfm14020075
Received: 17 December 2020 / Revised: 3 February 2021 / Accepted: 5 February 2021 / Published: 9 February 2021
(This article belongs to the Special Issue The Future of Banking Risk and Regulation)
In numerous Central and Eastern European (CEE) countries, the global financial crisis as well as the unpegging of the foreign exchange rate of the Swiss franc (CHF) against the euro amplified the repayment troubles of households with the outstanding CHF-linked debt. In Croatia, the CHF loans were approved mainly as mortgages to unprotected and subprime household borrowers without sufficient credit capacity for long-term euro-linked loans, which also contained a possibility of an incremental interest rate change, i.e., the so-called administrative interest rate. This article aims to disclose the reasons behind the credit boom of these loans, the unsustainable CHF debt hardship that the household sector consequently faced, and how it was/could have been resolved, with the Croatian banking sector at the center of the research. Although the CHF case of Croatia has some specificities concerning the prudential regulation and government-sponsored loan conversion, the findings about the supply and demand determinants of the CHF credit boom, as well as a critical assessment of the Croatian government and central bank interventions, might be useful for timely noticing universal threats from the exotic currency-linked loans for the systemic risk and financial stability, and for minimizing the negative externalities from probable debt relief measures. Based on the descriptive and univariate statistics conducted on Bloomberg and the Croatian National Bank (CNB) data, it was found that interest rate differentials and carry trading behavior were the main reasons for the rapid CHF credit growth in Croatia. Nevertheless, according to the financial experts’ opinions obtained via a questionnaire survey, and the court verdicts reached since, the financial consumer protection when contracting these loans was severely violated, which implies that the central bank must enhance its consumer protection role. By adopting a single-country and holistic approach, this is the first paper that deals with the socioeconomic dynamic of the CHF credit default issues in Croatia, which might be interesting as a case study or for making comparison with other CEE countries that have been coping with negative consequences of Swiss francization. View Full-Text
Keywords: foreign currency loans; retail banking; bank risk management; debt crisis; foreign currency-induced credit risk; financial consumer protection; prudential regulation; questionnaire; Swiss franc controversy; Croatian banking sector foreign currency loans; retail banking; bank risk management; debt crisis; foreign currency-induced credit risk; financial consumer protection; prudential regulation; questionnaire; Swiss franc controversy; Croatian banking sector
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MDPI and ACS Style

Kundid Novokmet, A. Troubles with the Chf Loans in Croatia: The Story of a Case Still Waiting to Be Closed. J. Risk Financial Manag. 2021, 14, 75. https://doi.org/10.3390/jrfm14020075

AMA Style

Kundid Novokmet A. Troubles with the Chf Loans in Croatia: The Story of a Case Still Waiting to Be Closed. Journal of Risk and Financial Management. 2021; 14(2):75. https://doi.org/10.3390/jrfm14020075

Chicago/Turabian Style

Kundid Novokmet, Ana. 2021. "Troubles with the Chf Loans in Croatia: The Story of a Case Still Waiting to Be Closed" Journal of Risk and Financial Management 14, no. 2: 75. https://doi.org/10.3390/jrfm14020075

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