PROBLEMS WITH LOANS INDEXED IN SWISS FRANCS: CASE STUDY OF HOUSING LOANS IN SERBIA

  • Željko Račić Novi Sad Business School
  • Slobodanka Jovin Novi Sad Business School
Keywords: foreign exchange risk, problem loans, risk management, forward transactions, loans indexed in Swiss francs, banking system of Serbia, National Bank of Serbia,

Abstract


Banks are profit institutions whose aim is to achieve maximum profit while taking the least possible risk. The appreciation of the Swiss franc over the past ten years has contributed to achieving the objectives of domestic banks while creating huge financial problems to the users of loans in that currency. Although the financial system of Serbia is not threatened by problem with these loans, the National Bank of Serbia offered four models to facilitate the repayment of debt, which were rejected by the majority of debtors. In many European countries, banks have problems with loans indexed in francs and they solved them by using the model of credit conversion (in euro or local currency), which predicted that the burden of losses for banks, after the conversion, is divided between banks and the government. The general conclusion of this paper is that recurrent crises in the financial markets around the world increase the likelihood of significant fluctuations in exchange rates in the long run, so when signing a contract with a foreign currency clause bank customers should consider the possibility of protection from adverse movements in exchange rates.

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Published
2016/11/01
Section
Review Paper