The strengthening of the Swiss franc has put borrowers in Hungary and Poland in the most unenviable position, while Croatian borrowers have felt this to a lesser extent compared to these two countries, analysts from Privredna banka Zagreb state.
They note that in the short term, a somewhat stronger franc is still expected, but with its gradual weakening, it is estimated that in the medium term, for example, within 1-2 years, the franc will again reach levels above 1.4 francs per euro (around 5 kuna per franc). The Swiss franc has been one of the most unpleasant surprises for borrowers across predominantly Eastern Europe over the past year, whose loan installments have significantly increased due to the strengthening of the franc against the euro and the subsequent weakening of local currencies against the franc, analysts from PBZ note. According to BIS analysis, as stated in PBZ Weekly Analyses, borrowers with loans tied to the franc in Hungary and Poland found themselves in the most unenviable position, where the volatility of domestic currencies against the euro (and thus the franc) was exceptionally high, simultaneously accompanied by a high share of loans tied to the franc in total foreign currency loans, or loans with a currency clause, of around 45 percent.
After these two countries, Croatia has the highest share of loans tied to ‘Swiss francs’ (above 15 percent), but since the volatility of the kuna exchange rate against the euro has not been as high as in the case of the forint or zloty, domestic borrowers have felt this to a lesser extent compared to these two countries (the level of interest rates in this calculation has not been taken into account). Thus, by mid-September, the kuna weakened by 15 percent against the franc compared to the end of 2009, while during the same period, the forint weakened by 19 and the zloty by 9 percent. Interest in the Swiss franc in international markets began to strengthen since the outbreak of the crisis that shook confidence in the financial system, i.e., the economies of the eurozone and the USA. As the franc, along with the yen, is a traditional safe haven for capital in unstable times, it began its usual rise, peaking in early September this year when there was a threat of the exchange rate against the euro dropping to 1.25, miles away from the level of 1.5 that the Swiss National Bank (SNB) considered optimal. It is noted that analysts’ estimates regarding the movement of the franc in the upcoming period significantly diverge, as while some expect continued strengthening until mid-next year and a rise to a level of even 1.2, others believe that its gradual decline will begin as early as the first quarter of next year. The general assessment of analysts, as stated in PBZ Weekly Analyses, is that a strong franc is expected to continue in 2011, and it is estimated that the exchange rate of the franc against the euro will average between 1.3-1.4 francs per euro, while Bloomberg’s consensus forecast for the end of 2011 is 1.36.
