Foreign currency loan

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Foreign currency loan is a loan , which in a different currency than the local currency of the borrower is taken and repaid in this.

General

A prerequisite for a foreign currency loan is a liberal money and capital market that allows foreign currency loans to be granted by lenders and borrowers to take out loans. In countries with foreign exchange restrictions , however, foreign currency loans are usually subject to approval or not permitted.

Motives for borrowing from borrowers can be commercial or speculative.

  • Commercial reasons exist if the borrower receives payments in the same foreign currency from a third party before or on the due date of the foreign currency loan , which he can use in whole or in part to repay the foreign currency loan. As an exporter , the borrower then has the currency of the foreign currency loan . It is suitable for sellers who have concluded transactions in a foreign currency, i.e. who also have claims in the same foreign currency. The exporter takes out a foreign currency loan in the same amount and currency in which he expects foreign currencies to be received. Importers can use a foreign currency loan, the interim financing to make an import and expect from other transactions cash receipts in the currency and amount of foreign currency loan.
  • In all other cases, there are speculative reasons if the borrower does not conclude hedging transactions immediately and congruently . Then he must obtain the foreign currency to repay the foreign currency loan by means of a cash transaction no later than the due date and thus bears an exchange rate risk .

Interest rate differential

The main reason for speculative foreign currency loans is a difference between the interest rate in the domestic currency and the interest rate in the country of the foreign currency . If the lending rate in the domestic currency is higher than the comparable lending rate in the country of the foreign currency, it is worth taking out a foreign currency loan. If the foreign currency loan is paid out, the borrower has to exchange the foreign currency for the domestic currency through a foreign exchange spot transaction, because as a rule he cannot use the income from the loan disbursement in foreign currency. For this purpose he concludes a cash sale through which he receives domestic currency. This in turn requires a cash purchase on the due date at the latest in order to obtain the foreign currency amounts required for repayment. The price risk to be borne by him is that the prices between cash sale and purchase are not identical.

Risks to the Borrower and Lender

There are only risks for the borrower with speculatively taken out foreign currency loans. There is then the risk that the exchange rate will change after borrowing up to the due date (i.e. between the cash sale at the time of disbursement and the cash purchase on the due date). If the exchange rate for the foreign currency loan falls by the due date, the borrower achieves an exchange rate gain, conversely he suffers a rate loss. In order to exclude this risk of exchange rate changes during the term of the loan, the borrower can conclude a forward exchange transaction or currency option transaction with an identical term on the day the foreign currency loan is taken out . However, this will usually not be worthwhile, because the swap costs for these transactions take away the interest rate differential gained from the foreign currency loan. Therefore, borrowers of foreign currency loans will not undertake exchange rate hedging and are therefore exposed to a high risk of repayment. Lenders ( credit institutions ) are also exposed to an increased risk of repayment in the case of foreign currency loans if the borrower has to raise more domestic currency on the due date than he received at the time of payment. They offset this increased credit risk with around 20% higher credit collateral .

Foreign currency loans with municipalities

The inclusion of foreign currency credit is within the local procurement of funds ( Kommunalkredit , cash credit ) in many states municipal legally permissible in principle. Since the municipal borrowers do not pursue any commercial reasons in taking out foreign currency loans, taking out loans as speculation is prohibited. German municipalities have hit the headlines as borrowers who took out foreign currency loans just to take advantage of the low interest rates in Switzerland. However, since the interest rate level also decreased in Germany and the exchange rate of the Swiss franc rose sharply, considerable losses had to be realized or are still present as latent losses. In NRW alone, 26 municipalities are said to have taken out foreign currency loans in CHF in order to reduce the interest burden. Of the municipal loans in NRW amounting to 47.57 billion euros (2013), 1.86 billion euros (or 4% of all municipal loans) were foreign currency loans.

Foreign currency loans and country risk

From the borrower's point of view, foreign currency loans are foreign currency liabilities. In economics , foreign currency liabilities form part of the national debt . In particular, weak currency countries such as developing and emerging countries and their importers are mostly unable to receive foreign loans in domestic currency and are therefore subject to the problem of the original sin . These states themselves or their importing companies are then forced to take out foreign currency loans abroad. In order to repay them, the state must hold or still generate appropriate foreign currency reserves. If this does not succeed, the debtor state or the company must obtain the foreign exchange required to repay the foreign currency loans on the foreign exchange market through cash transactions. If this happens permanently, there will be pressure to devalue , so that the affected state or its importing company will have to raise more and more domestic currency to procure foreign currency.

This self-reinforcing process ultimately leads to currency poverty and thus to foreign exchange control , which prohibits importing companies from taking out foreign currency loans or at least makes them dependent on government approval. This situation represents a special repayment risk for the lenders of foreign currency loans. Therefore, foreign currency loans must be given special consideration in the country risk , because the government or central bank of a country may not be able (economic risk) or will (political risk) to repay the To procure foreign currency liabilities or the state does not use existing foreign currency for repayment ( transfer stop risk ). In these cases, rating agencies and banks assign a so-called foreign currency rating in addition to the country rating , which takes the transfer stop risk into account.

International

Austria

Austrian banks grant around 40% of all foreign currency loans in the euro area. In Austria, the share of foreign currency loans in the total loan volume is relatively high. In Vorarlberg it was 41%, in Tyrol 29%. In all of Austria they account for 25% of all loans. Even private real estate financing is taken out as foreign currency loans.

In Austria, foreign currency loans have been so popular since the late 1990s that in November 2008 around a third of the personal loan volume was agreed in foreign currencies. In 2009, Austria accounted for almost half of the foreign currency loans in euro countries . It is customary to take out this type of financing with a bullet payment, i.e. only interest payments during the term and repayment at the end of the term. In order to save the loan amount, a savings plan is usually concluded, since one expects a further reduction in costs due to the expected price gains in securities investments. Such financing , also known as " repayment suspension loans ", naturally carries an additional risk.

The Financial Market Authority (FMA) regards this risk as systemically relevant and has published a recommendation that places high demands on the issuing of new foreign currency private loans. As a measure of the banks' duty of care , the recommendation is a quasi-standard.

The extension of the minimum level of October 16, 2003 by the Financial Market Authority on March 22, 2010 prohibits new loans in foreign currency and repayment vehicle loans for private individuals - with a few exceptions.

The granting of a foreign currency loan is currently permitted in Austria, but strict rules have been introduced by the FMA. The award is only possible after a strict credit check. This is to determine whether the borrower has enough reserves for any changes in the exchange rate. People who receive their income in the loan currency are also included. However, the rule applies to all of them that no variant with a capital-building repayment vehicle is allowed.

ECJ on foreign currency loans

The European Court of Justice (ECJ) ruled in October 2019 that it was compatible with EU law to declare foreign currency loans to be ineffective . Courts in EU member states can therefore annul credit agreements with foreign currency clauses. A Polish court asked the European Court of Justice whether the foreign currency clause at issue could be replaced by general provisions of Polish law or whether it would invalidate the entire contract. "In loan agreements concluded in Poland and linked to a foreign currency, the unfair clauses on the exchange rate difference cannot be replaced by general provisions of Polish law".

See also

Web links

Wiktionary: Foreign currency loan  - explanations of meanings, word origins, synonyms, translations

Individual evidence

  1. In Germany, according to Section 3 Sentence 1 of the Currency Act, up to December 1998 the taking up of foreign currency loans between residents of foreign currency was subject to an authorization requirement. In China, foreign currency borrowing had to be approved by the State Administration for Foreign Exchange
  2. ^ Johannes CD Zahn / Dietmar Ehrlich / Gregor Haas, Payment and Payment Security in Foreign Trade , 2009, p. 358
  3. ^ Andreas Keller, The European Monetary Union and its influence on industrial medium-sized companies , 1998, p. 59
  4. Landtag NRW, printed matter 16/6399 of 25 July 2014
  5. Kölner Stadt-Anzeiger of January 23, 2015, losses due to Swiss franc loans "completely fictitious "
  6. Kerstin Fink / Christian Ploder, Business Informatics as a Key to Corporate Success , 2005, p. 210
  7. Klaus Losbichler, Foreign Currency Financing , 2009, p. 107
  8. The capital market risk must come from the products in: DerStandard from March 23, 2010, accessed on March 23, 2010.
  9. " Opportunities and Risks of Foreign Currency Loans " (PDF; 174 kB) Uni Linz, IBFW, abridged version of the diploma thesis, accessed on June 30, 2010.
  10. " Swiss Franc Loan - A foreign currency loan in CHF in Austria " geldjournal.at accessed on May 31, 2014.
  11. ECJ, judgment of October 3, 2019, Az .: C-260/18, case Kamil Dziubak and Justyna Dziubak / Raiffeisen Bank International AG
  12. FAZ.net press release of the ECJ of October 3, 2019
  13. ECJ, judgment of October 3, 2019, Az .: C-260/18, case Kamil Dziubak and Justyna Dziubak / Raiffeisen Bank International AG