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Higher Cost Pressure for Austrian Banking Industry

Published: October 31, 2013; 07:07 · (Vindobona)

Due to national and international regulations, Austrian banks have to bear higher costs than their foreign competitors.

Higher Cost Pressure for Austrian Banking Industry / Picture: ©

In total, additional costs for the Austrian banking sector comes at € 6.7bn, the Austrian Chamber of Economics (WKO) said. WKO refers to a study carried out by the business advisor Oliver Wyman. Besides European regulations, there are a number of further legal requirements on the national level, WKO explains. Thus, the higher costs are mainly due to national regulations, the bank tax and the capital-add-on for Austrian banks. In Austria, systemic banks have to achieve a capital-ad-on of 2.0% at least. As a result, the Austrian banking sector has to bear more costs than their European competitors.

According to Oliver Wyman, regulatory costs in the UK are about 10% lower. In Germany, regulatory costs are lower by 20%. As a consequence, the Austrian banking sector suffers from a significant competitive disadvantage.

The authors of the study explain that there may be four mechanisms to offset the additional costs. However, most of them are hard to realize. Moreover, taken in isolation, none of the mechanisms is realizable.

If the shareholders would have to bear the costs, they would have to accept a yield reduction of 1.8 percentage points. However, taking up capital would be rather impossible in this case.

Offsetting the additional costs by higher interest rates would cause a net interest margin increase of 1.0 percentage points. Due to a decline in investments, Austrian economy would contract in this case.

Another alternative would be the withdrawal from foreign markets. Risk-weighted assets would have to be reduced from € 650bn to € 315bn. For Austrian banks, a withdrawal from the CESEE market is definitively no alternative, though.

The last option, which would mean a fierce cost-cutting program, would prove unrealistic. After the austerity programs in the Austrian banking sector, further cuts are unlikely and hard to implement.