Troubles with the Chf Loans in Croatia: The Story of a Case Still Waiting to Be Closed

Abstract

In numerous Central and Eastern European (CEE) countries, the global financial crisis as well as the unpegging of the foreign exchange rate of the Swiss franc (CHF) against the euro amplified the repayment troubles of households with the outstanding CHF-linked debt. In Croatia, the CHF loans were approved mainly as mortgages to unprotected and subprime household borrowers without sufficient credit capacity for long-term euro-linked loans, which also contained a possibility of an incremental interest rate change, i.e., the so-called administrative interest rate. This article aims to disclose the reasons behind the credit boom of these loans, the unsustainable CHF debt hardship that the household sector consequently faced, and how it was/could have been resolved, with the Croatian banking sector at the center of the research. Although the CHF case of Croatia has some specificities concerning the prudential regulation and government-sponsored loan conversion, the findings about the supply and demand determinants of the CHF credit boom, as well as a critical assessment of the Croatian government and central bank interventions, might be useful for timely noticing universal threats from the exotic currency-linked loans for the systemic risk and financial stability, and for minimizing the negative externalities from probable debt relief measures. Based on the descriptive and univariate statistics conducted on Bloomberg and the Croatian National Bank (CNB) data, it was found that interest rate differentials and carry trading behavior were the main reasons for the rapid CHF credit growth in Croatia. Nevertheless, according to the financial experts’ opinions obtained via a questionnaire survey, and the court verdicts reached since, the financial consumer protection when contracting these loans was severely violated, which implies that the central bank must enhance its consumer protection role. By adopting a single-country and holistic approach, this is the first paper that deals with the socioeconomic dynamic of the CHF credit default issues in Croatia, which might be interesting as a case study or for making comparison with other CEE countries that have been coping with negative consequences of Swiss francization.

Financial Inclusion Paradigm Shift in the Postpandemic Period. Digital-Divide and Gender Gap

“…In addition, the international financial crisis in 2008 eroded consumer confidence in the banking system. The general perception is that credit institutions show a corporate social irresponsibility [29,30,37].…”

“…The higher participation of the population on the financial market is mainly due to the increase of the living standard but, recently, was pushed up by pandemic restrictions (lockdown, limited activities for consumers or on-line transactions, etc.). Higher incomes generate also an increased propensity for consumption which is fueled by the offers of traders and financial institutions [29][30][31]. On the other hand, "democratization of credit" or "easy credit culture" has led to a significant increase in the share of the population accessing credit through various channels, registering the excessive indebtedness of certain categories of people, generally those with a low degree of financial education and low income earners.…”