Here’s a great chart from Reuters showing just how addicted many countries in emerging Europe have become to borrowing in foreign currency for everything from second homes to TV sets :
As Reuters notes, the European Bank for Reconstruction and Development (EBRD) is concerned that despite FX loans nearly blowing out the region earlier this year, most countries and institutions have failed to learn anything from the episode. In fact FX borrowing is supposedly back on the rise in many emerging European countries as talk of recovery propels many to take a more positive view on things like euro adoption.
In a bid to nip this sort of potentially destabilising behaviour in the bud, however, Reuters reports that the EBRD has decided to take things into its own hands. According to the news agency, the international body is hosting a high-level workshop with regional participants on Thursday in its attempt to wean the region off its FX obsession:
As Reuters reported on Wednesday:
The high-level meeting is supposed to come up with ideas on self-imposed rules the region’s mostly Western-owned banks and their regulators can implement quickly rather than to design a grand regulatory scheme. Those rules are likely to include stopping for good some forms of unsecured consumer lending in foreign currencies and stricter conditions on fx mortgages, the sources said.
“What is important is that there is serious thinking about how this vulnerability can be addressed,” said one of the sources involved in the meeting which like the others asked for anonymity because the workshop has not been announced publicly. “It might be a unique opportunity because we are getting out of the systemic risk phase, and this is a time to address systemic vulnerabilities,” the source said.
Related links:
The Financial Fix That Saved Eastern Europe - EBRD
Poland: not so strong after all? – FT Alphaville
The big Le-borrow-ski – FT Alphaville
Emerging Europe outlook: still bleak – FT Alphaville