UPDATE 1-Watchdog says Austrian fx loans systemic risk

* Austrian households have 35.7 bln eur in fx debt

* Level declining after regulators clamp down

* More difficult to reduce E.Europe fx lending

(Adds detail, background)

VIENNA, May 26 (BestGrowthStock) – The 35.7 billion euros ($43.9
billion) in foreign currency (Read more about trading foreign currency. debt owed by Austrian households
poses a risk to the country’s financial system and its
reputation, supervisor FMA said on Wednesday.

Big Austrian banks have large domestic loan books, mostly
mortgages denominated in Swiss francs (CHF=: ), as well as large
portfolios of Swiss franc and euro-demoinated loans to
homeowners and consumers in ex-communist nations nearby.

“The volume of foreign currency (Read more about trading foreign currency. loans and loans with
repayment vehicles that are extended to households in Austria
… has reached a level that constitutes a potential systemic
risk,” FMA said in its annual report.

FMA and Austria’s central bank started to clamp down last
year and have effectively outlawed new foreign currency (Read more about trading foreign currency. lending
to clients without income in the currency. But the existing
stock of debt is coming down only slowly, FMA said.

Existing volumes are “capable of damaging Austria’s
reputation as a financial centre,” it said.

Foreign currency loans create the risk of higher defaults if
the currency appreciates versus the local currency. They are
also a liquidity risk for banks that need to refinance in the
foreign currency (Read more about trading foreign currency., which can become difficult in hard times.

Austria’s biggest banks — Erste Group Bank (ERST.VI: ), RZB
[RZB.UL] (RIBH.VI: ) and UniCredit’s (CRDI.MI: ) Bank Austria — are
also the biggest lenders in the former communist part of Europe.

FMA co-head Helmut Ettl told a news conference that it was
more difficult to reduce foreign currency (Read more about trading foreign currency. loan exposure in those
emerging nations, where there often are no alternatives.

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(Reporting by Boris Groendahl; editing by Steve Gutterman)

UPDATE 1-Watchdog says Austrian fx loans systemic risk