It was really easy getting that mortgage in Hungary, and the best of all, denominated in Swiss Francs, so the interest rate was low. Such a great plan, if it wasn’t for that currency risk. Ordinary people don’t think in such terms, and definitely did not hedge that exposure. With the ever increasing strength in the Swiss Franc, people with mortgages in Swiss Francs are starting to feel the currency effect big time. Since such a big proportion of the mortgages are taken out in non domestic currencies, people are squeezed. Could the Swiss Franc increase the debt repayments of the mortgages, and ultimately cause huge defaults in these countries?

GRAPH: Exotic Currency risk by retail business of Austrian banks. Austrian banks are most exposed to forex loans in the Czech Republic and Romania. Chart courtesy Stratfor.
Historically low interest rates on loans in Swiss francs have led consumers in major Central European countries such as Poland, Slovakia, Hungary and the Czech Republic to acquire substantial loans, particularly mortgages, in francs. Currently, 53 percent of outstanding mortgages in Poland and about 60 percent of those in Hungary are denominated in francs.