Zurich, January 15, 2015

South Eastern European currency echoes 

The Swiss National Bank (SNB) today  announced that they are scrapping the EUR/CHF 1.20 cap (set some 3 years ago). As a response the CHF has shown considerable appreciation against the EUR and is inducing several CEE currencies towards their all-time lows against the CHF. Moreover, one should not see any quick reversal in the EUR/CHF exchange rate over the next months or so, with volatility and market speculation in CHF to remain high.

The CHF appreciation is  having considerbly severe implications on the CE/SEE region, especially given the noticeable CHF denominated loan shares in Poland, Hungary but also Croatia, Romania or Serbia.

Whereas the projections were a more or less steady EUR/CHF exchange rate at just above 1.20 throughout 2015, the current CHF appreciation will cause CHF/PLN, CHF/HUF, CHF/RON, CHF/HRK and CHF/RSD  considerable depreciation compared to previous forecasts of roughly 20%. Additionally given that the current exchange rate forecasts for EUR/PLN, EUR/HUF and EUR/RON are already on the more positive side, a revision towards weaker EUR/LCY has become more likely. Thereby negative effects for PLN, HUF and RON against CHF could be higher, whereas specialists currently see no EUR/LCY adjustment needed in Serbia or Croatia. Additional depreciation pressure of the CEE currencies against the EUR and hence the CHF in the months ahead may arise from the outlook for very subdued price growth in nearly all CEE markets (excluding Russia and Ukraine) as well as the outlook for more monetary easing or other non-orthodox monetary policy measures compared to Eastern European specialist current baseline forecasts.

With regards to potential effects on the CEE banking sectors we see the effects from the recent CHF jump to be strongest in Poland given the fact that in Hungary some FCY and CHF exposures have already disappeared due to (enforced) conversions, while the conversion rate for the next round has already been fixed. Nevertheless, there is also modest CHF loan exposure out there in the Croatian, Serbian and Romanian banking sector. That said it has to be stressed that CHF exposures in CEE are by and large in retail lending, while a lot of CHF borrowers had been already under pressure before the most recent CHF sprint./RLU