Academic journal article Journal of East European Management Studies

Social Responsibility in Bank Communication with Customers before the Economic Crisis – the Case of Swiss Franc Loans in Hungary and Romania *

Academic journal article Journal of East European Management Studies

Social Responsibility in Bank Communication with Customers before the Economic Crisis – the Case of Swiss Franc Loans in Hungary and Romania *

Article excerpt

1. Introduction

After the last economic crisis of 2008-2009, countries from Central and Eastern Europe (CEE) faced serious social problems caused by the Swiss franc mortgages and the depreciation of the euro against the Swiss franc. Hundreds of thousands of holders of Swiss franc mortgages across Austria, Croatia, Hungary, Romania, Slovakia, Czech Republic, Poland, Lithuania and Estonia could not pay their monthly installments because the exchange rate for the Swiss franc increased significantly overnight. However, not all countries were equally affected by this situation (Brown et. al. 2009; Apostoiu 2011).

Hungary and Poland experienced this situation acutely, whereas Croatia, Romania, Slovakia, Czech Republic, Lithuania and Estonia were less affected. Hungary and Romania, two neighbouring countries, but with different experience in Swiss franc loan lending, will be analyzed in detail regarding the banks' social responsiveness to this situation. Hungary was most affected, partially because of the high rate of the Swiss franc-based loans (34.3% of all credits). In Romania, the Swiss franc loans had only a small market share (4.9% of all credits) (Apostoiu 2011). Therefore, it is possible that other factors played a role in customer insolvency, such as the relatively low uncertainty avoidance specific for Romanian financial industry (Catană/Catană 2010).

The responsibility for customers' insolvency is shared by several stakeholders such as banks, customers themselves, the national bank and the government (M. László 2011). In order to take competitive advantages, banks had offered new exotic products such as loans in a foreign currency (Swiss franc or yen) with a low interest rate but with a high risk, making their clients vulnerable to sudden events such as currency fluctuations. Loans in foreign currency expose households to many different risks: exchange rate risk, interest rate risk, market risk, maturity mismatch risk, double exposure risk (foreign currency and real estate) and litigation risk. In Austria, where the practice of borrowing in Swiss francs began, the currency risk was not perceived by the population because of the hard currency policy promoted for the last two decades (IMF 2005). In other CEEC the lack of trust in the stability of the local currency and in the domestic financial institutions contributed to the widespread use of foreign currency (Fidrmuc et. al. 2013).

This lending practice contradicts the stakeholder-oriented management view, which states that socially responsible companies should satisfy the long-term needs of all their stakeholders (customers, suppliers, employees, communities and financiers) (Freeman et. al. 2007; Freeman 2010). Although this principle has been widely accepted by theoreticians since 1984, in practice companies hardly ever implement it. For example, Handy (2002) argues that managers would rather satisfy the needs of their shareholders than those of their stakeholders (Handy 2002). Upcoming changes are expected because research shows that future managers consider that equal attention should be given to shareholders, co-workers, customers and the society (Skapinker 2009), and customer satisfaction is the most important criteria for decisions in corporate social responsibility (Remišová et. al. 2013). To keep in line with the principles of the corporate social responsibility, companies should also take into account some typical consumer issues, such as customer communication, among others (Clarkson 1995).

The financial crisis of 2008 seriously damaged the relationship between banks and their customers (Hansen 2012). It is well known that trust between partners is enhanced by good communication (Anderson/Weitz 1989; Lotila 2010; Park et. al. 2012). A socially responsible form of advertising should disclose all relevant information of the products, including also the potential risks (Arens 2004). The way in which this information is disclosed could be assessed by the concept of corporate social responsiveness. …

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