„Austrian Banking Sector Still Weakly Capitalized“

„Austrian Banking Sector Still Weakly Capitalized“ / Picture: © Vindobona.org

In the last months, the equity base has improved slightly, OeNB´s board of directors states. Above all, the three big banking groups Bank Austria, Erste Group and Raiffeisen Bank International have made significant progress. This is mainly due to the higher profits recorded in 2012.

In 2012, the consolidated financial statements after tax and minority shares increased from € 711m to € 2.97bn in the Austrian banking industry. According to the Austrian National Bank (OeNB), the consolidated operating profits augmented strongly in comparison with 2011 even though losses had to be faced in two conventionally important constituents, namely the results of interests and net commission income. OeNB explains the strong upturn primarily because of the special effects like the repurchase of hybrid capital and long-term subordinate capital. Furthermore, the decline in write-offs of some of the affiliates’ goodwill and risk provision for securities contributed to a positive development.

However, the progress made is still not enough. Until 2022, the Austrian banks have an equity requirement of five to eight billion euros. The internal stress test by OeNB, was made together with the IMF in spring. A few weeks ago, S&P warned and explained that the economic conditions may deteriorate further in the next quarters. At the moment, the risk-adjusted capital ratio of Erste Group, RZB and UniCredit reaches 5.5 %. S&P considers a ratio between 7 % and 10 % as adequate. As a result, big Austrian banks will have to access the capital market in the medium term, S&P argues. However, the figures published by S&P do not contain the participation capital held by the Austrian state. In 2009, the Austrian state provided about € 3.0bn to RZB (Raiffeisen Zentralbank) and Erste Group. According to S&P, the recovery path is not stable yet. As the external risks are not under control yet, Austrian banks may face “increasing difficulties to build up capital internally.”

Moreover, the operating business is still weak and the net income in the Austrian domestic market is very low, OeNB underlined. In general, the Austrian banking industry is market by small growth rates for years, a high degree of competition and a high density of bank branches. As a result, the margins are under pressure. All in all, Austria´s banking sector is solid, Governor of Austrian National Bank Ewald Nowotny underlined. However, it is necessary to improve the ability to absorb risks more effectively, Nowotny concluded.

Bank Austria is the biggest lender in the CESEE region and is followed by RBI and Erste Group. In total, the exposure of Austrian banks in the CESEE region amounts to € 320bn.