Press Release

OeNB Governor Nowotny highlights capital support measures for Austrian banks, their conservative business model as well as their broadly diversified exposure to Central, Eastern and Southeastern Europe (CESEE) June 11, 2009, Universitätsclub Klagenfurt, Abbazia di Rosazzo

Over the past few months, Austrian banks have considerably bolstered their crisis resilience. The Austrian government has to date taken capital support measures of about EUR 6 billion in addition to private equity capital injections; some EUR 16 billion of bank bonds guaranteed by the federal government have been issued and the Oesterreichische Clearingbank has become actively involved – all of these measures have played an important role in strengthening the Austrian banking sector, said the Governor of the Oesterreichische Nationalbank (OeNB), Ewald Nowotny, on Thursday, June 11, 2009, speaking at an event organized by the Universitätsclub Klagenfurt at the Abbey of Rosazzo. Furthermore, banks seem to be shifting to a more conservative business model, where foreign currency lending plays a diminishing role. The volume of foreign currency loans has already decreased in Austria, while deposits at Austrian banks both at home and in Central, Eastern and Southeastern Europe (CESEE) have been on the rise, which reflects investors’ high confidence in Austrian banks. Governor Nowotny was also guardedly optimistic about the prospects for both the global and the European economy.

Professor Nowotny, who as governor of the Austrian central bank is also a member of the Governing Council of the European Central Bank (ECB), stressed that this cautious optimism also applied to the region of Central, Eastern and Southeastern Europe. What is more, the economies of this region will contract less strongly during the crisis than those of Western Europe or the euro area, and over the medium term, will again record positive growth differentials of 2% and more. At the same time, CESEE is a highly heterogeneous region in terms of economic development, and only a few countries have been hit hard by the crisis. These countries have sought and received assistance from the IMF and the EU. It is therefore especially gratifying to note, from the Austrian perspective, that sizeable additional funds have been made available for these international support programs. Austrian banks, in turn, could at any time tap into sufficient funds within the framework of the Austrian bank package, should further capital support measures become necessary, added Governor Nowotny.

Nowotny went on to point out that Austrian banks’ exposure to CESEE is high (end-2008: EUR 199 billion), yet broadly diversified throughout the region and largely locally financed. Close to 75% of these claims are on countries which are members of the EU or even – as in the case of Slovenia and Slovakia – of the euro area. The Czech Republic, a fellow EU member, accounts for the highest share in Austria’s claims on this region (EUR 39 billion), whereas – at the other end of the spectrum –  Austria’s exposure to the Baltic states is minimal (EUR 0.64 billion, of which Latvia accounts for EUR 0.29 billion).  

Austrian banks active in CESEE can rely on comparatively sound operating earnings. In addition, the CESEE portfolio predominantly involves traditional banking risks. Governor Nowotny also stressed that Austrian banks’ total international exposure (including their CESEE activities) comes to some 121% of GDP, which – compared with other European countries – is relatively small. Given their clear focus on the European growth markets in CESEE, Austrian banks’ exposure to western markets is minor. Their claims on Ireland come to no more than EUR 3.8 billion (1% of total external claims outstanding), while their exposures to the U.S.A. and to Spain amount to EUR 14.8 billion (4.1%) and EUR 5.7 billion (1.5%), respectively. In other words, Austrian banks are hardly burdened with toxic assets. Structured loans merely account for around 1% of Austrian banks’ total assets. Austrian banks have realized small profits even in the crisis year 2008 and boast capital ratios that markedly exceed the regulatory requirements. The provision of participation capital within the framework of the bank package considerably strengthened Austrian banks’ capital base and thus their risk-bearing capacity. In the first quarter of 2009, Austrian banks, on balance, likewise recorded a positive profit performance, said Governor Nowotny.

According to the most recent economic forecast of the OeNB, the Austrian economy is expected to contract substantially in 2009, yet somewhat less strongly than the euro area as a whole or Austria’s main trading partner Germany. According to Nowotny, this is partly attributable to the structure of the Austrian economy, which is broadly diversified and boasts a well-balanced sectoral structure. The continued high current account surpluses moreover underscore Austria’s international competitiveness. Austria has thus for years been in a net lender position in international capital markets rather than having to borrow from them, stated Governor Nowotny. 

Despite an expansive fiscal policy, Austria’s government debt ratio will remain below the euro area and EU averages also in 2009 and 2010. At 62.5% (2008), government debt is low by international standards. Governor Nowotny underlined in this context that the interest burden on government debt decreased from 4% of GDP (1995) to 2.5% (2008). He concluded by saying that even though Austria’s fiscal burden was comparatively small and at any rate sustainable, there was political consensus in Austria that it was necessary to resolutely return to a path of consolidation at the first signs of a stabilization of economic growth.