What Drives Credit Euroization In Emerging Countries? The Evidence for Macedonia

Boskov, Tatjana and Bishev, Gligor and Vrcelj, Nevena (2016) What Drives Credit Euroization In Emerging Countries? The Evidence for Macedonia. In: LIMEN 2016 Leadership & Management: Integrated Politics of Research and Innovations, 15 Dec 2016, Belgrade, Serbia.

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Abstract

In recent years, an increasing share of credit in the emerging countries in Europe has been denominated in foreign currency, a process also referred to as credit euroization. Despite warnings from researchers and central banks, the inherent risks associated with foreign currency (FX) lending have been underestimated or neglected by banks and borrowers. The global financial crisis induced a materialization of these risk factors. The weakening of emerging European countries currencies against the Euro led to a significant increase in the real costs of unhedged FX borrowing and consequently higher expected credit default risks for banks. The FX-loan and FX-deposit ratios do not capture the whole scale of euroization as transactions often take place outside of the banking channels. The high level of euroization is common in emerging countries in Europe as in countries with fixed exchange rate regime. Considering the exchange rate experience of Macedonia, it is likely to remain significantly erotized country for an extended period. An appropriate strategy could be support of the domestic market and maintain prudent policies that mitigate the risks of foreign currency. This paper shows the presence of the foreign currency mainly in the Macedonian economy and suggests that credit euroization is driven by foreign borrowings.

Item Type: Conference or Workshop Item (Paper)
Subjects: Social Sciences > Economics and business
Divisions: Faculty of Tourism and Business Logistics
Depositing User: Tatjana Boskov
Date Deposited: 01 Mar 2017 10:10
Last Modified: 01 Mar 2017 10:10
URI: http://eprints.ugd.edu.mk/id/eprint/17519

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