The latest report on financial stability from the Hungarian central bank features some arresting statistics on foreign-currency lending in the country. Hungarian households’ enthusiasm for Swiss franc-denominated loans played a major role in deepening the country’s recession, as a retreat from risky assets punished currencies like the forint and bolstered safe havens like the franc.

New foreign-currency loans in Hungary have slowed markedly in recent months, with borrowers favouring forints. Still, franc, yen and euro-denominated loans comprise some 70% of outstanding loans.

Even if all foreign-currency lending stopped from today, the outstanding stock of these loans would fall by only around 13% by the end of 2011, according to the central bank. With such a large share of the population exposed to foreign-exchange risk, “the vulnerability of the financial system is decreasing only gradually,” the bank laments.

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