This is Argyn's blog. I comment on topics of my interests such as software, math, finance, and music. Also, I write about local events in Northern Virginia, USA and all things related to Kazakhstan

Monday, October 27, 2008

FX Loans

Hungary Verges On IMF Rescue
Parmy Olson, 10.27.08, 8:08 AM ET

Hungary's has been the prevalence of so-called FX loans to its citizenry. These are loans that are tied to either the Swiss franc or the euro, making them cheaper than those tied to the Hungarian forint, and consequently to Hungarian interest rates, which currently stand at 11.5%.

The problem is that Hungary's currency has been sliding recently, increasing the likelihood that these loans will go into default. If, for example, a teacher took out a mortgage in Swiss francs but was paid in forints, he would be more likely to default on his mortgage if the forint depreciated while the Swiss franc remained relatively stable. FX lending is big in Hungary, amounting to 34.0% of the country's gross domestic product at the end of June, compared with 11.0% for Poland and 4.0% for the Czech Republic.

Why would they sell these loans to ordinary citizens who don't understand currency risks?! It's just plain stupid.

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