Following intensive consultations, the Austrian Financial Market Authority (FMA) and the Oesterreichische Nationalbank (OeNB) have devised a set of measures to make the business models used by Austrian banks operating in Central, Eastern and Southeastern Europe (CESEE) more sustainable.These measures will be published as prudential guidelines before the end of 2011.
The package of sustainability-boosting measures is meant to strengthen banking groups’ capital adequacy and to improve CESEE subsidiary banks’ refinancing options as follows:
First, to bolster banking groups’ capital bases, the Basel III rules will be implemented fully as soon as they take effect on January 1, 2013 (the participation capital subscribed under the bank support package will be included in the capital base).Second, as from January 1, 2016, banks will be obligated to hold an additional common equity tier 1 ratio of up to 3%, depending on therisk inherent in the respective business model.
To promote the subsidiaries’ refinancing structure, credit growth will in the future be conditional on the growth of sustainable local refinancing (comprising mainly local deposits, but also local issuance activity and supranational funding, e.g. by the EBRD or the EIB).In the future, subsidiaries that are particularly exposed must ensure that the ratio of new loans to local refinancing (i.e. the loan-to-deposit ratio including local refinancing) does not exceed 110%.
Moreover, banks will have to draw up living wills and resolution schemes to hedge for potential crisis situations.
“Austrian banks doing business in CESEE rely heavily on a business model that centers on traditional retail banking, both in Austria and in CESEE. This model will be further strengthened and hedged thanks to these new provisions,” announced FMA Executive Board Member Kurt Pribil. OeNB Governor Ewald Nowotny added, “This set of measures will provide a sustainable growth model both to the CESEE economies and to the banks active in the region, irrespective of pronounced boom-bust cycles. Not only will the measures benefit the stability of the local financial markets, but Austria’s exposure to this region will also become more sustainable.”
Months of intensive consultations with individual banks preceded the adoption of this set of sustainability-boosting measures, which have paved the way to an adequately funded long-term business model.