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Moody’s Honors Austrian Banks in CESEE

Published: October 3, 2013; 14:07 · (Vindobona)

Only a year ago, the rating agency downgraded Austria because of its banks’ engagement in Eastern Europe. However, the situation has changed to the better.

Moody’s Honors Austrian Banks in CESEE / Picture: © Moody's Investors Service, Inc. - Annual Report 2013

According to the rating agency, there are very positive developments of the CESEE engagements of Austrian banks. The risk of contingent liabilities are not as high anymore, Moody’s stated. Without the banks’ activity in Central and Eastern Europe, the domestic economy was significantly less dynamic. “I see Eastern Europe not as a factor that has long-term negative impacts on Austria’s rating,” Dietmar Hornung of Moody’s Germany announced at the start of the 27th Alpbach Financial Symposium.

The Austrian banks were exposed to high risks. However, this has now changed and the patience has paid off now. Moreover, the engagement of Austrian banks in Eastern Europe had a stabilizing effect on the region, according to the expert.

Only in June last year, Moody’s has downgraded major banks like Erste Group, RBI and Bank Austria, which have been strongly engaged in CEE, on the basis that the risk was high in the region. However, the business models of these banks in Eastern were classified as sustainable and profitable even at that point. Moreover, Moody’s has awarded Austria the top grade Triple A, however, with a negative outlook.

More good news is Hornung’s announcement that the differentiation of the countries was the focus again. “After years of convergence we see a new phase of differentiation,” he said. Austrian banks and politicians accused the rating agencies and international institutions to lump all countries together in one category because of the economic crisis instead of distinguishing between the individual countries.

Alain Piloux, President of the European Bank for Reconstruction and Development (EBRD), considers the role of Austrian banks in the CEE region as sustainable; however, this can only be reached with efforts. Because of the political stability, low unemployment rate, the funding of small enterprises and export orientation, Austria is a model for many countries, according to him. Yet he emphasized that still a lot of effort was necessary as the banks were currently seeing a painful process of adjustment. However, the region was not only vital for banks to grow but also for Austrian enterprises.

Last week U.S. rating agency Fitch too reiterated the “AAA” sovereign debt rating for Austria. The outlook remains “stable”, analysts of Fitch said.

Austrian Minister of Finance Maria Fekter is highly satisfied with the rating. According to her, the rating is mainly due to the “fiscal discipline, the structural reforms and the offensive innovation measures”. Fekter emphasizes that the Austrian government still aims to reach the “zero deficit” until 2016. Due to the difficulties in the nationalized Austrian banking sector, economists are in doubt whether this fiscal target is realistic. In the next ten years, the capital shortfall is expected to reach about € 15bn.

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