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Austrian Banking Sector: € 35bn NPL

Published: December 9, 2013; 06:25 · (Vindobona)

Due to the gloomy economic situation in CESEE and the stagnating domestic economy, Austrian banks suffer from growing non-performing loans.

Austrian Banking Sector: € 35bn NPL / Picture: © Vindobona.org

Since 2008, the asset quality of Austrian banks did not improve. Above all, the situation in some CESEE regions is still concerning. Besides that, an increase in insolvencies in Austria does not contribute to improve the frame conditions for the banking industry. With the bankruptcy of FCC´s subsidiary Alpine, the Austrian banking sector had to absorb the biggest insolvency in their history this year.

In total, the non-performing loans in the Austrian banking sector amounts to €35bn. This corresponds to 11% of the Austrian GDP. This figure is substantially above the European average. In Spain, the NPL quota comes at 12%. With an NPL quota of 11.5%, Italy ranks second in EY´s report. The German banking sector only has an NPL quota of 3.2%. In the Eurozone, the average NPL ratio came at 7.8% at the end of the third quarter of 2013.

In absolute terms, the nationalized lender Hypo Group Alpe Adria has the largest NPL volume. The size of non-performing loans is estimated to come at € 18bn. Erste Group, the third biggest lender in the CESEE region has bad assets of 12.4bn in its books. With risky assets of € 8.5bn, the second biggest lender in CESEE RBI (Raiffeisen Bank International) ranks third.

The best NPL quota is registered at Bawag (3.6%). Bawag is followed by Bank Austria and Erste Group (9.2%). RBI´s NPL quota comes at 10.3%. VBAG´s share of risky loans amounts to 10.4%. The nationalized banking group Hypo Group Alpe Adria has a NPL quota of 27%.

About 80% of the non-performing loans are due to operations in CESEE. Since 2008, NPL in the CESEE region have growth substantially. The most difficult markets are Croatia, Slovenia, Serbia, Romania and Hungary. In these countries, the official NPL quotas range between 17% and 22%. In countries like Poland, Slovakia and the Czech Republic, the NPL quota only ranges between 4.5% and 6%.

In spring, the ECB will assess the asset quality of the Austrian banking sector. However, the assessment criteria are still not determined yet. Above all, the definition of risky assets is everything but clear. Due to the relatively big exposure in Central, East and Southeast Europe (CESEE) the definition of non-performing loans is crucial for Austrian banks, though. As the ECB may push for stricter rules, banks are expected to register higher risk provisions in the near future. Moreover, the current capital quota will prove insufficient.

According to Stefan Pichler (Vienna University of Economics and Business Administration), the NPL ratio was mainly up because of the decreasing lending business in the last years. Pichler explains that it is not foreseeable yet whether Austrian banks need further capital measures.