Eastern Europe: Drive to restrain euro lending

Eastern Europe is looking for ways to reduce dependence on loans denominated in foreign currencies, particularly the euro and Swiss franc.

Officials at the EBRD meeting in London this weekend agreed to find ways to develop local currency markets in order to reduce dependence on foreign currency credits. Officials are not looking to regulate but to encourage voluntary moves by banks to tighten rules on foreign currency loans. Officials plan to meet again early next year, preparing concrete proposals by spring.

When the financial crisis struck, foreign currency loans comprised up to 90 per cent of lending in Latvia, and exceeded 50 per cent in several states. In countries with floating exchange rates, such as Poland, Romania and Ukraine, local currencies fell, leaving individual and company borrowers facing steep payment increases. In fixed exchange rate countries, including the Baltic states and Bulgaria, governments are maintaining exchange rates only by squeezing their economies and pushing up unemployment.

Reporting by Stefan Wagstyl. Read more here.

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