Austrian Central Bank Calls for Rise in Equity for Banks

Austrian Central Bank Calls for Rise in Equity for Banks / Picture: © Vindobona.org

The Austrian Financial Market Authority (FMA) and the Austrian Central Bank (OeNB) today published a package of measures for domestic banks in order to strengthen their capital base. Moreover, the business model in the CESEE region should become more sustainable. Besides this, the refunding structure of subsidiaries in the region should be improved.

The Basel III regulations will put into force by the beginning of 2013. The participation capital held by the state will be credited therefore. By 2016, an additional capital base of 3.0% will be required. This will depend on the riskiness of the business model.

Loan growth of foreign subsidiaries will be connected to the local refunding and local deposits. Loans must not exceed 110% of refunding and deposits (Loan-to-Deposit Ratio).

„The business model in the CESEE region of Austrian banks is strongly focused on a traditional retail business. With these steps, the model will be further strengthened and secured.”, the head of FMA, Kurt Pribil explained. According to the governor of OeNB, Ewald Nowotny, the package of measures will bring a high degree of sustainable growth, which is more independent from boom and bust cycles. Sustainability of Austrian exposures would be secured, Nowotny added.

For FMA and OeNB, the package is the result of a “intensive and long-lasting consultation process with single banks”. The market, however, reacted strongly negative. After the announcement, share prices of Erste Group (-6.0%) and Raiffeisen Bank International (-4.3%) decreased massively. Since the beginning of the year, Erste Group lost 64% of its market value, RBI went down by 62%. The ATX decreased by 40%.