Foreign currency loans were pushed to clients as a cheaper way to get credit by benefiting from low interest rates charged for other currencies such as the Swiss franc and, previously, the Japanese yen.
They can pose some risks for clients. If the loan currency rises against the domestic one, their debt grows. Also, the loans are due on maturity and backed by a repayment vehicle, which are invested with shares in the stock market. They will fall in value of the market drops substantially, as it has done recently.
Only time will tell if the steps Austria is taking will work. While iShares MSCI Austria (EWO) rose a strong 7.1% yesterday, it’s nearly erasing those gains today in early trading. The fund is down 51.2% year-to-date.