Austrian Banks with Capital Reserves Prove Resilient Despite Downturn
Despite Austria's longest, albeit not deepest, recession since World War II, domestic banks are in robust shape. Thanks to high profits in 2024, most of which were retained to strengthen the equity base, the Common Equity Tier 1 (CET1) ratio rose to an impressive 18.6 percent by mid-2025.
Although the Austrian economy has returned to moderate growth and overcome the recession that lasted almost two years, the recovery remains subdued, according to the Austrian National Bank. / Picture: © Wikimedia Commons / C.Stadler/Bwag / CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0)
This significant capital accumulation strengthens the sector's resilience and creates scope for lending, as stated in the latest Financial Stability Report published by the Austrian National Bank (OeNB). The Austrian economy is primarily driven by public consumption, while key industries such as construction and consumer-related services continue to struggle. This is reflected in a persistently high household savings rate and rising corporate insolvencies.
The lending business presents a mixed picture: private residential construction lending picked up again due to improved affordability. By contrast, demand for corporate financing remained subdued. Persistent uncertainties are leading to restraint in capital expenditure.
Commercial real estate becomes a problem
According to the OeNB, the biggest burden on banks' credit quality comes from the commercial real estate (CRE) sector. While the overall share of non-performing loans (NPLs) stagnated at around 3.0 percent in the first half of 2025, the rate for commercial real estate financing is significantly higher.
At the end of 2024, the NPL ratio in this area was already at 5 percent. The trend is particularly dynamic in project financing, with a ratio of 8.4 percent. According to the National Bank, the construction and real estate sector has developed from a “model student to a problem child” in recent years.To counteract the risks, the Financial Market Stability Board (FMSG) has already recommended and implemented the introduction of a sectoral systemic risk buffer of 1 percent for commercial real estate loans from mid-2025 (July 2025).
Stricter requirements and value adjustments loom
The OeNB warns that a significant increase in the need for value adjustments for already non-performing loans is to be expected in the near future, particularly against the backdrop of new European risk provisioning regulations (Basel III). This will have a negative impact on banks' profits and equity capital.
The National Bank is therefore making specific recommendations: Credit institutions should prepare for stricter supervisory requirements for commercial real estate loans and secure their capital base, if necessary by exercising restraint in profit distribution. In addition, cost discipline and investment in digitalization and cybersecurity are recommended.