OREANDA-NEWS. April 30, 2013. In Latvia, in 2010, foreign currency loans constituted 90.5 percent of all private loans, which was also the highest level when compared to Central and Eastern European countries. In Lithuania, the interest in borrowing in foreign currency has been more modest: By the end of 2004, 43 percent of loans from the private loan portfolio were paid out in foreign currency, by the end of 2012, 72 percent.

In Estonia, directly before the Euro was taken into use, 86 percent of loans were euro loans. In comparison: In 2010, 67 percent of loans in Hungary, 65 in Romania, and only 36 in Bulgaria were paid out in currencies other than the domestic currency, as the Baltic Household Outlook, prepared by SEB, shows.

How families who have taken loans in foreign currencies cope with loan commitments largely depends on the strength of the local currency. Research has shown that in countries where currency depreciation occurred during recession, private persons had more problems with paying back the loan than in countries with fixed exchange rates. According to research by the National Bank of Austria, the incidence of loan indebtedness is about 12 percent higher in those countries where currency depreciation occurred when compared to those where this did not happen.

“Interest in taking a loan in a foreign currency arises when banks offer more favourable interest rates for foreign currency loans. The interest rates for euro loans have been significantly lower and families have preferred euro loans, especially when taking home loans, in order to keep monthly loan costs as low as possible. Since joining the European Union, all Baltic States have shown a readiness to introduce the euro, in the meantime they have pegged their currencies to the euro, and consequently the exchange rate risk has generally been considered low. Introducing the euro in Latvia and Lithuania fully eliminates the loan currency and income risk of currency exchange rate for these families who own currency loans,” said Triin Messimas, Development Manager of Private Loans at SEB Estonia.