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Swiss policy turn may dampen Polish consumption

Wednesday, February 11, 2015

Subject

The impact on Central Europe of the reverse in Swiss monetary policy.

Significance

The Swiss National Bank's (SNB) decision in January to scrap its exchange-rate peg against the euro raised concerns about a mortgage repayment crisis and lending practices in Central Europe (CE). Banks across the region are well capitalised on the whole, and better placed to absorb the impact of financial risks arising from the decision than those of countries further south-east, where deleveraging has continued. Banks in the Czech Republic and Hungary are the least exposed to foreign exchange (FX) risk; those in Poland are the most exposed.

Impacts

  • Poland's capital-adequacy ratios and strong credit portfolio will offset balance-sheet risks, but profits may fall in the short term.
  • Hungary's banking sector is under heavy strain as a result of the government's FX debt relief programme.
  • However, the Funding for Growth Scheme, and high forint and FX reserves, provide a liquidity buffer.
  • Czech banks are CE's most profitable and liquid and will not be affected owing to tiny exposure to Swiss franc denominated loans.
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