Foreign Currency Loans in Austria Fall to New Low in Q2 2024
The market for foreign currency loans in Austria continues to decline sharply. The Financial Market Authority (FMA) published a new survey for the second quarter of 2024, which shows a further significant decline in the outstanding volume of such loans.
The Swiss franc dominates Austria's foreign currency loans market, accounting for 98.6% of outstanding loans, with the remaining small proportion primarily in Japanese yen. / Picture: © Wikimedia Commons, Swiss National Bank, Public domain
Adjusted for exchange rate effects, the outstanding volume of foreign currency loans fell by EUR 360 million, which corresponds to a decrease of 5.3% compared to the previous quarter. Within the last twelve months, the volume fell by a total of 1.53 billion euros or 19.1%. As of June 30, 2024, 6.49 billion euros were still outstanding in foreign currency, marking a new low.
This development continues the downward trend that has been ongoing for years and began after the 2008 financial crisis. At that time, the granting of new foreign currency loans in Austria was stopped, which led to a drastic decline in the volume of loans. Since the ban, the volume has fallen by an impressive EUR 42.68 billion or 88.9% when adjusted for exchange rate effects. The share of foreign currency loans in all loans to private households was just 3.66% at the end of the 2nd quarter of 2024. In comparison: in 2006, when this form of financing was particularly popular, the share was still 31.8%. The importance of foreign currency loans has therefore fallen drastically since then.
Swiss franc continues to dominate the market
Almost all remaining foreign currency loans (98.6%) are denominated in Swiss francs, with the exchange rate hovering at around CHF 0.9634 per euro in the reporting period. The Swiss franc has appreciated by 71.6% since 2008, which has presented many borrowers with major challenges. The strong appreciation of the franc meant that loan repayments in euros became more expensive for many households. This rise in the exchange rate significantly increased the financial burden for borrowers who had assumed a much weaker franc when taking out loans.
Background to Foreign Currency Loans in Austria
Foreign currency loans were a popular form of financing in Austria in the 1990s and early 2000s, as they often offered more favorable interest rates than comparable euro loans. Many borrowers therefore decided to take out real estate loans in Swiss francs or Japanese yen in particular. However, the great popularity of foreign currency loans was not without risks: Changes in exchange rates meant that monthly loan installments in euros could fluctuate significantly. While the interest rates on these loans remained low, currency fluctuations made repayments unpredictable and risky in many cases.
After the global financial crisis in 2008, the Austrian government intervened and stopped granting new foreign currency loans. This step was intended to help minimize the risks for borrowers and banks. Since then, the volume of these loans has fallen continuously. The FMA regularly emphasizes that borrowers who still service foreign currency loans should be aware of the risks and, if necessary, consider restructuring measures to avoid exchange rate fluctuations.
Despite the continuous decline, the monitoring of foreign currency loans by the FMA remains an important part of financial market regulation. Given the continuing foreign currency risks, the FMA recommends that remaining borrowers think carefully about their financial strategies, especially concerning possible conversions into euro loans.