Management summary ¹

After two consecutive years of economic contraction, the OeNB expects only a very moderate recovery of the Austrian economy in 2025 (+0.2%). This weak recovery after the most prolonged downturn since 1945 is mainly due to Austria’s weak price competitiveness in both the industrial and service sectors ­following the surge in inflation and subsequent wage increases above the euro area average. While industrial production was surprisingly strong around the turn of the year 2025, the introduction of US tariffs on goods from European and many other countries will weigh on growth in the coming months and act as a drag on the profitability of companies. In its projections for 2026 and 2027, the OeNB expects ­sustained negative effects due to continued tariff-related uncertainty and the introduction of higher tariffs, alongside a dampening impact on income and growth arising from fiscal consolidation efforts.

These conditions have already weighed on corporate loan demand, as firms scale back investment in fixed assets, which means that they require less financing for inventories and working capital. While the sector’s nonperforming loan (NPL) ratio remains low by historical averages, it rose faster than in many other EU countries. The deteriorating macroeconomic backdrop is beginning to erode banks’ overall asset quality. Risks have continued to materialize, especially in the commercial real estate sector. The NPL ratio for these loans rose significantly in 2024, prompting the introduction of a sectoral systemic risk buffer, effective July 2025. The additional capital requirements aim to bolster the banking system’s resilience to mounting risks in this segment.

In contrast, the downturn has had only limited impact on the labor market and thus household solvency. Lower financing costs and rising real incomes have improved loan affordability, helping to drive a nascent rebound in demand for residential real estate loans in 2024 – a trend expected to continue into 2025. In light of stable lending standards and the absence of systemic risks in this segment, the sustainable lending regulation (KIM-V) expires at the end of June 2025. Nonetheless, it remains important to maintain ­prudent underwriting practices to safeguard long-term financial stability.

Overall, Austria’s banking sector remains well-positioned to navigate a period of elevated uncertainty. A modest domestic recovery and downside risks from geopolitical and trade tensions make for a particularly challenging environment for the banking sector. The substantial capital buildup since the global ­financial crisis – reflected in a Common Equity Tier 1 (CET1) ratio of 17.5% – combined with a suite of micro- and macroprudential reforms, has, however, fortified the system’s shock-absorbing capacity. Posting EUR 11.5 billion in profits, the sector achieved its second-strongest annual result on record in 2024 and maintained capital levels near historic highs. Operating profits remained broadly stable year on year, buoyed by strong net interest income, particularly from corporate lending and central bank deposits. However, overall profitability declined due to negative deconsolidation effects, increased provisioning and significantly lower earnings from at-equity investments. Looking ahead, banks anticipate only a ­modest dip in profits for 2025, as one-off losses subside, but higher loan loss provisions are required to meet regulatory coverage thresholds.

Austrian banks’ operations in Central, Eastern, and Southeastern Europe (CESEE) continued to play a pivotal role in group profitability. Austrian lenders have focused their expansion on core markets and EU member states including Czechia, Slovakia, Romania, Croatia and Hungary. Thanks to favorable conditions, CESEE subsidiaries reported historically low NPL ratios – falling below domestic levels for the first time. By contrast, cross-border exposures to CESEE as well as to Germany’s real estate and construction ­sectors saw a marked deterioration in credit quality.

Recommendations by the OeNB

• preparing for stronger regulatory requirements for commercial real estate (CRE) financing and staying committed to sustainable lending standards for real estate financing;
• ensuring adequate risk management practices in times of increased uncertainty, including higher provisioning (especially for the unsecured part of loans) and conservative collateral valuations;
• sustaining capital levels, if necessary, by holding back on profit distributions; and
• ensuring sustainable profitability (as a risk buffer), especially by
  • maintaining cost discipline and
  • investing in digitalization and cybersecurity.

1 For a German-language management summary of the Financial Stability Report 49, see Financial Stability Report 49 im Überblick .

Austrian economy needs new growth drivers to speed up recovery after long contraction

HICP inflation will rise slightly in 2025 despite falling energy prices. The subdued GDP outlook is ­accompanied by a slow decline in inflation. In 2025, HICP inflation is expected to increase by 0.1 percentage points compared to 2024, reaching 3.0%, despite a sharp drop in energy prices after the announcement of comprehensive tariffs in early April. The primary drivers of the increase are also linked to energy prices: Price-dampening fiscal measures ended in December 2024, and energy prices in Austria remain sticky – especially for households. This means that the decline in prices will be passed on to consumers with a delay and that the full effect will not be felt until 2026. In addition, even though wage growth is declining in 2025, services inflation is moderating slowly. Overall HICP inflation is expected to remain well above the euro area average, at 3.0% (2025), 1.8% (2026) and 2.1% (2027).

Subdued recovery across all demand components. A closer look at the projection shows a subdued recovery in both domestic and external demand. Since the end of the COVID-19 crisis, many European countries have seen a consumption-driven recovery supported by strong wage growth and comprehensive fiscal transfers that compensated for income losses, accompanied by falling saving rates. In contrast, Austria’s saving rate is expected to stand at 9.6% in 2027, remaining well above its historical average, and consumption has not contributed as expected. This consumer restraint may be attributable to persistent weakness in household sentiment, which appears to be more sensitive to rising prices than to income gains. Another factor behind the high saving rate could be the decline in the real value of financial assets. A simple linear ­extrapolation of real household financial asset growth from 2012 to 2019 shows, first, an above-trend increase in the real value of household financial assets during the pandemic, and second, a significant erosion caused by the 2022–23 inflation shock. As of end-2024, the real value of households’ financial assets remained more than 10% below the extrapolated trend.

Compared to previous recoveries, investment is growing modestly, not making an above-average ­contribution. Investment growth rests on three main pillars: first, equipment investment, which is highly sensitive to the economic cycle and is currently hampered by uncertainty about potential tariffs. At the same time, core sectors of Austrian industry, such as machinery and vehicle production, have suffered a deep and prolonged contraction. Although there are signs of stabilization in early 2025, a significant ­rebound in investment remains unlikely for now due to the availability of spare capacity. Second, housing investment, which follows a longer cycle and has recently been weighed down by rising financing costs: Building permits do not indicate a rapid recovery. Third, public investment, which is also constrained by fiscal consolidation needs and therefore cannot provide a boost to the economy.

Finally, export growth is expected to recover slowly given the challenging environment of weak ­demand, higher production costs, euro appreciation and, more generally, a high-risk backdrop. The OeNB therefore expects Austria to continue losing export market share in 2026/27, even though the loss of price competitiveness against foreign trading partners is coming to an end.

The economic downturn has so far had only minor effects on the Austrian labor market, but unit labor costs have increased strongly. The number of employees, which was flat in 2024, is expected to rise again from 2025. Registered unemployment will increase slightly in 2025, remain nearly unchanged in 2026, and decline in 2027. In 2024, increases were recorded in industry as well as in private and public services. The seasonally adjusted unemployment rate rose to 7.2% in the first quarter of 2025 and is expected to increase further until 2026, before declining to 7.2% in 2027. During the pandemic and the following years, unit labor costs in Austria increased at a substantially faster rate than in Germany. In the forecast period, the situation improves significantly, but Austria cannot reverse the losses in competitiveness.

Uncertainty about global trade and tariff policy poses a significant risk to both Austria’s external ­contribution to real GDP growth and to inflation developments. How the trade dispute evolves – especially after the three-month pause on even higher tariffs against Europe and many Asian countries and the threat of tariffs on pharmaceutical products (a key driver of Austrian exports to the US in recent years) – will be crucial for Austria’s real and nominal economic development. The tariff shock triggered a ­sentiment shock, a shock on financial markets, and consequently also on commodity prices. These shocks could ­re-emerge if the tariff war intensifies further, or could be reversed, with comprehensive effects on GDP growth and HICP inflation.

Table 1: OeNB June 2025 Economic Outlook for Austria – main results  

					Revisions since March 2025
	2024	2025	2026	2027	2025	2026	2027
	Annual change in % (real)				Percentage points
Gross domestic product (GDP)	–1.1	0.2	0.9	1.1	0.3	–0.3	–0.1
Harmonised Index of Consumer Prices (HICP)	2.9	3.0	1.8	2.1	0.1	–0.5	0.0
	%				Percentage points
Unemployment rate (national definition)	7.0	7.4	7.4	7.2	0.0	0.1	0.1
	% of nominal GDP				Percentage points
Budget balance	–4.7	–4.2	–3.8	–4.0	–0.4	–0.5	–0.9
Source: OeNB economic outlooks of March and June 2025.

Number of corporate insolvencies is rising in Austria, while risk-bearing capacity of households has improved

Austria saw a sharp rise in corporate insolvencies in 2024, with nearly 6,600 companies filing for bankruptcy. ² According to KSV1870 data, the sectors most affected are real estate and construction, ­retail, and hospitality. Within the overall construction sector, especially residential construction remains under pressure. Major bankruptcies with liabilities over EUR 10 million nearly doubled compared to the previous year. As a result, liabilities of insolvent companies increased by 31% year on year to a total
of EUR 18.3 billion. Over 50,000 creditors and nearly 30,000 employees were impacted. Persistent ­challenges include high costs, labor shortages and weak export demand. As Austria’s economic downturn continues into 2025, 1,795 companies filed for insolvency in the first quarter, a further increase from the previous year. Though a few sectors show mild improvement, overall business sentiment remains bleak.

Higher savings and increasing disposable income strengthen households’ resilience. Austrian households’ net disposable income rose markedly from EUR 267.5 billion in 2023 to EUR 285.7 billion in 2024. Accounting for inflation, this represents a 3.5% ­increase in real disposable income. Driven by increasing uncertainty, the saving rate remained well above average pre-pandemic levels at 11.5% in 2024. Households’ debt-to-income ratio continued to decrease in 2024, mainly reflecting increasing net disposable income. At 76%, it was well below the historical average of 91%, strengthening ­Austrian households’ repayment capacity.

Households expanded their financial assets. The nominal stock of households‘ total financial assets increased from EUR 833.5 billion in 2023 to EUR 888.5 billion in 2024, corresponding to an ­annual growth rate of 5.6%. This increase was spread fairly evenly across all major asset classes, including transferable deposits, other deposits, long-term debt securities, listed shares, investment fund shares and, to a smaller extent, other equity and life insurance reserves.

2 For more details, see https://www.ksv.at/media/2756/download.

Austrian banking sector well prepared for times of high uncertainty

Banks’ profits in 2024 near record high

Robust net interest income (NII) was the main contributor to current profitability levels. In 2024, the ­Austrian banking system derived around 70% of its revenues from interest income, with most of it ­coming from corporate lending. In recent years, however, the share of net contributions generated from deposits with central banks has increased from a low single-digit percentage to currently 12%. With more restrictive monetary policy, banks expect the momentum in NII to slow down or come to a halt in the years ahead.

Earnings expectations for 2025 suggest stable profitability, but downside risks are increasing due to the challenging macroeconomic environment. Based on banks’ forecasts as of end-2024, it is expected that the annual earnings for 2025 will broadly match those for 2024. Due to falling interest rates, Austrian banks expect lower NII. They also anticipate declines in dividend income, as banks await lower distributions. Net fees and commissions income is expected to decline, as persistently weak lending, increased competition and cautious securities investments amid high market volatility will weigh on the income side. The anticipated increase in personnel and operating expenses will raise operating costs, although the wage agreement in March 2025 was moderate. Banks expect higher earnings from at-equity investments in 2025 and plan to build fewer reserves than in 2024, which will positively impact profits. Having said that, banks expect significantly higher loan loss provisions in 2025 compared to the previous year due to the stagnating Austrian economy and the necessity to improve the coverage of newly formed nonperforming loans (NPLs) to meet regulatory requirements.

Capital levels remain high

Foreign currency exchange adjustments were a drag on other comprehensive income. Another ­factor that weighed on Austrian banks’ capitalization in 2024 was the increase in foreign currency exchange adjustments that directly affected capital through a further decline in other comprehensive income. These adjustments were necessary, as Austrian banks are exposed to foreign currency risk, mainly through their local subsidiaries in Central, Eastern and Southeastern Europe (CESEE). Converting profits from these markets into the parent company’s reporting currency resulted in losses.

The IMF recently concluded that the Austrian financial system remains stable, liquid and profitable. In March 2025, the IMF said in its concluding statement of the article IV mission that Austrian banks’ ­resilience continues to benefit from strong levels of profitability and capitalization. This will be further assessed in the upcoming Financial Sector Assessment Program.

Banking sector expanded and maintained a robust liquidity position amid monetary policy normalization

Table 2: Assets of the Austrian banking sector  

	End-2021	End-2022	End-2023	End-2024	2024 vs. 2023
Consolidated figures	EUR billion				%	EUR billion2
Total assets	1,197	1,200	1,216	1,265	4.1	49
Cash and central bank reserves	186	161	152	136	–10.2	–15
Loans and advances	787	814	819	859	4.8	39
Debt securities	138	146	164	186	13.9	23
Other assets	85	79	81	84	3.4	3
	%
Total assets / GDP	294.6	267.8	256.9	262.5
Growth in total assets (year on year)	5.3	0.3	1.3	4.1
Real growth in total assets1 (year on year)	1.5	–9.3	–4.1	1.9
1 Real growth rates are calculated using HICP.
2 May not equal difference of figures for end-2023 and end-2024 due to rounding errors.
Source: OeNB.

Austrian banks’ liquidity positions remain comfortable despite monetary policy normalization. Chart 7 shows that banks mainly substituted decreasing central bank reserves with similarly safe and liquid assets (high-quality liquid assets, HQLA), in particular with top-rated government bonds and covered bonds. Thus, liquidity risk metrics remained broadly stable. In particular, the liquidity coverage ratio (LCR) of the Austrian banking sector, which measures the amount of HQLA banks hold against the net liquidity outflows in a dedicated 30-day stress scenario, stood at 177% as of end-2024. This is comfortably above the 100% regulatory minimum.

The shift from overnight to term deposit funding stalled as interest rates decreased. On the liability side, the spread between term and overnight deposit rates, i.e. depositors’ opportunity cost of holding overnight deposits, has narrowed as interest rate decreased in 2024. As chart 5 shows, this has stabilized the funding shares of overnight and term deposits, stopping the marked shift from overnight to term ­deposit funding that had been underway since interest rate hikes began in mid-2022. Banks continued to substitute central bank funding from the ECB’s ­expiring longer-term refinancing operations by ­issuing debt securities and equity in 2024. As a ­result, they were fully able to finance the real economy.

Credit quality is deteriorating, and mortgage lending is picking up

Demand for housing loans picked up as affordability improved. Demand for residential real estate (RRE) loans picked up from a low level in 2024, as seen in chart 10, and is expected to continue rising in 2025. This development in housing demand was primarily driven by the ECB’s interest rate policy. Due to lower financing costs and higher real household incomes, loan affordability has recently improved. In ­January and February 2025, an average of EUR 1.1 billion in new housing loans were granted per month. This is an increase of more than half from last year. Demand for housing loans is rising, signaling a further increase in new lending in the coming months. However, in the foreseeable future, it is unlikely that lending will grow at strong rates similar to the low-rate environment that lasted until mid-2022.

Loans to NFCs were the primary driver of the adverse developments in banks’ credit quality. Chart 12 decomposes the abovementioned time series of NPL ratios at year-end into its contributions by NFCs, households and other entities such as governments, central banks and financial corporations including banks. Whereas the contributions from households remain nearly unchanged at 0.8 percentage points, the NPL component attributable to NFCs has increased by 0.8 percentage points to 2.0 percentage points since year-end 2022. This development is driven primarily by growth in NPLs to NFCs, which have ­increased by EUR 7.8 billion, whereas the total ­volume of loans outstanding to NFCs has risen by only EUR 4.3 billion.

The decline in the quality of loans to NFCs is concentrated in a handful of industries. Chart 13 shows the shares of the four most relevant industrial sectors in total NPL volume over time. These four sectors, real estate, construction, manufacturing, and wholesale and retail trade ⁸ , have consistently accounted for more than 50% of total NPL volume since 2019. In 2024, their share of the total volume of NPLs to NFCs rose to nearly 80%, driven almost exclusively by loans to companies from the real estate and construction sectors. Since 2022, the share of NPLs to real estate companies has ­risen by 20 percentage points from 15% to 35%, whereas the share of construction firms has ­increased by 7 percentage points to 16%. In absolute terms, loans to companies from these two ­industries account for EUR 4.9 billion of the EUR 7.8 billion increase. It remains to be seen whether the tariffs imposed by the US will have a significant impact on the manufacturing sector, which is also among the top four sectors by NPL volume and one of the largest in terms of exposure.

Increasing use of forbearance measures helped avoid a further increase in NPLs. To prevent loan ­defaults, banks and borrowers can agree on measures that enable borrowers to return to a sustainable repayment path. An increase in forbearance measures is thus a (forward looking) indicator of higher ­credit risks for banks. In 2024, the share of forborne loans in total loans rose to 2.6%. As for NPLs, the deterioration was more pronounced for corporate loans than for loans to households. At the same time, the share of loans classified in the IFRS stage 2 category, i.e. loans with a significant increase in credit risk since initial recognition, has fallen but remains high by international standards. Chart 14 illustrates this counterintuitive divergence. Typically, both indicators should exhibit similar trends. This was the case ­until 2023, but the trend broke down in 2024. Three main causes can be ­identified: First, stage 2 classifications can also include overlays, especially in the form of collective stage transfers, whereas forbearance measures are based on factual evidence. Second, one-third of forborne loans are already nonperforming, whereas stage 2 loans typically are not, as NPLs move from stage 2 to stage 3 ⁹ . Third, banks, especially smaller institutions, often experience seasonality and one-off ­effects in their credit risk assessments, ­requiring a longer period to clearly demonstrate a sustained reversal in trend. In addition to the third ­reason, which is structurally significant in Austria due to the high number of small banks, the use of ­overlays (the first factor) is important from a regulatory ­perspective, particularly in the current environment. Overlays are discretionary and extraordinary interventions that may be necessary to compensate for a lack of historical data required for Expected Credit Loss modeling when previously unobservable risk factors suddenly emerge. After the outbreak of the COVID-19 pandemic, several other risks materialized that could not previously be modeled, including supply chain issues, rising energy prices and a subsequent rise in inflation. Consequently, Austrian banks created extensive overlays, which they maintained over several years. This is evident as the share of stage 2 loans in Austria has been well above the EU average for an extended period – and remains so despite a recent decline. Now that the models have been adjusted, these overlays have been reduced, which – counter­intuitively at first glance – coincided with an actual ­deterioration in credit quality. Continuous model development should therefore lead to convergence in the future.

Particularly small banks with strained workout resources are facing a stronger increase in NPLs. As illustrated in chart 15, particularly smaller banks with total assets below EUR 10 billion were significantly impacted by the rise in NPLs from the end of 2022 to the end of 2024. Banks in this category ­reported a 115% increase in NPL volumes during this period, whereas large banks experienced a rise of just under 40%. This is worrisome from a risk perspective, as smaller banks typically have limited capacity to reduce NPLs, i.e. they find it harder to sell NPL portfolios because of their small sizes, and after years of low NPLs, their resources for effective internal workout procedures are strained. Consequently, they typically keep NPLs on their books for longer, thus burdening their capital, as new EU provisioning rules have to be observed. ¹⁰ This can restrict new lending and turn out to be detrimental to financial stability and economic growth.

Coverage of NPLs with specific provisions and collateral (coverage ratio 3) has remained stable in the range of 70% to 80% both for loans to NFCs as well as the population of total loans. Chart 16 illustrates the coverage ratios for NPLs to NFCs as well as all borrowers over time. The coverage ratio 1 includes only loan loss provisions, whereas the coverage ratio 3 includes provisions and collateral up to the value of the loan. While the coverage ratio 3 for both NFCs and all loans has not shown a distinct trend over recent years, the coverage ratio 1 declined to 37% in 2024, a drop of about 14 percentage points from 2018. For both definitions, coverage ratios for loans to NFCs are nearly indistinguishable from the ratios for all loans. Taken together, this implies that banks’ provisions for credit losses have not grown at the same rate as NPLs – neither for loans to NFCs nor for all loans. However, in the aggregate, this shortfall is compensated by an increased total value of collateral.

Real estate financing remains a supervisory focus

The KIM-V is set to expire in June 2025. Under Austrian law, borrower-based measures (BBMs) expire three years after their initial implementation. To extend BBMs for up to two years, the OeNB has to assess the existence of systemic risks as well as the effectiveness of BBMs in mitigating them. These conditions are difficult to meet at the same time, as effective BBMs lead to a reduction in ­systemic risks, while ineffective BBMs need to be replaced by a more appropriate macroprudential measure. In light of current legislation, it is therefore almost impossible to implement BBMs as a long-term policy. Given the banking system’s high ­capitalization, sound lending standards and comparatively low lending volumes, no significant systemic risks stemming from RRE financing are currently identified over an appropriate time horizon, leading to the expiration of the regulation as mandated by law. However, as stated by both the OeNB and the FMSB, maintaining sound lending standards is necessary to prevent structural risks to the financial ­system, not least because it avoids a “stop-and-go” policy – i.e. once lending standards deteriorate, more severe policy action like binding BBMs may be required – which is usually associated with high economic costs.

The return of interest rate risk

The end of “low for long” implies a renewed ­necessity for supervisors to monitor interest rate risk. Chart 20 illustrates the sharp increases in ­interest rates and interest rate expectations ­(reflected in the changes of the right-hand side of the yield curve) after a long period of very low ­interest rates. These changes imply increased ­attention to banks’ exposure to interest rate risk. Table 3 presents two perspectives on interest rate risk by reporting the effects of a 200 basis point interest rate hike on Austrian banks’ economic ­value of equity (EVE) and NII. The two measures are complementary. While the latter shows how ­interest rate increases affect income from banks’ interest-bearing assets and liabilities that reprice within one year, the former reflects the effects on the present discounted value of all bank assets and liabilities. The higher the repricing maturity of a fixed-income asset, e.g. of a long-term government bond, the more its discounted value decreases as interest rates increase. ¹⁹ Since repricing maturity tends to be higher for bank assets than for bank liabilities, the EVE of most banks is negatively affected by higher interest rates. At the end of 2024, for instance, 89% of banks reported a negative impact on their EVE, with total EVE losses amounting to 6.2% of aggregate T1 capital, which is far below the 15% threshold of the supervisory outlier test. On the other hand, most banks report a positive impact of higher interest rates on their NII, which is in line with the evidence in the paragraph above. In 2024, only
79 banks (one-quarter of the sample) reported a negative NII impact, while the aggregate NII impact was positive.

Table 3: Interest rate risk in the Austrian banking sector  

Impact of a +200 basis point interest rate shock on banks’ economic value of equity (EVE) and net interest income (NII), consolidated figures
	End-2021	End-2022	End-2023	End-2024	2024 vs. 20233
Number of reporting banks	376	353	334	323	–11
Banks with EVE losses	376	309	281	289	+8
Aggregate EVE loss in % of aggr. T1 capital	5.0	4.5	4.9	6.2	+1.4pp
Median bank-level EVE impact in % of T1 capital	–6.9	–6.9	–5.3	–6.6	–1.3pp
Banks with NII losses1			32	79	+47
Aggregate NII loss in % of aggr. T1 capital			0.2	0.2	+0.0pp
Aggregate impact on NII in % of aggr. T1 capital			1.3	0.4	–0.8pp
Median bank-level impact on NII in % of T1 capital			2.8	1.0	–1.8pp
Expected baseline NII in % of T1 aggr. capital2				20.8
1 Impact on NII only available from 2023.
2 Only available from 2024.
3 May not equal difference of figures for end-2023 and end-2024 due to rounding errors.
Source: OeNB.

Austrian banks became more exposed to interest rate risk in 2024. Assessing the changes in interest rate risk between 2023 and 2024, table 3 reveals an increase in Austrian banks’ interest rate risk exposure. Aggregate EVE losses have increased from 4.9% to 6.2% of aggregate T1 capital (+1.4 percentage points). This increase seems to be related to the fact that banks substituted central bank reserves, which reprice immediately, with less interest-sensitive assets like debt securities and loans. Looking at the short-term impact of a standardized 200 basis point increase in interest rates, the number of banks reporting NII losses has more than doubled, while the overall NII increase for the entire banking sector shrunk from 1.3% to 0.4% of aggregate T1 capital. For those banks whose NII is negatively affected by a positive ­interest rate shock, the aggregate NII loss relative to T1 capital is 0.2%, far below the regulatory threshold of 5%, implying that the short-term impact of higher interest rates is less positive but non-threatening to the overall sector. In the absence of major interest rate shocks, banks expect an aggregate NII of 20.8% relative to aggregate T1 capital in 2025. This is lower than the record NIIs of 2023 (24.4% of T1 capital) and 2024 (26.1% of T1 capital) but higher than in 2022 (19.6% of T1 capital).

International operations are an important part of Austrian banks’ business models

The activities in CESEE are focused on EU countries, with Czechia, Slovakia, Romania, Croatia and Hungary being the top five host countries of subsidiaries. The most relevant countries are Czechia and Slovakia, accounting for more than half of Austrian banks’ total assets in CESEE. Around one-quarter of total assets is in CESEE countries in the euro area, while the exposure to non-EU CESEE countries is only 15% and declined significantly since Russia’s invasion of Ukraine, mostly driven by de-risking activities in Russia and the exit from Belarus. ²⁰ An acquisition in Poland is expected to close at the end of the year. This will contribute to dynamic growth of exposure in the region.

Lending to households dominates the loan book of CESEE subsidiaries. In 2024, loans to households dominated the credit portfolio of Austrian subsidiaries in Czechia, Slovakia, Romania, Croatia and Hungary. 86% of the CESEE subsidiaries’ total loans were granted in those five countries. The share of lending to governments tends to be higher in CESEE countries compared to banks located in the euro area. The share of foreign currency lending continued to decline and stood at 17.6% as of June 2024. Foreign ­currency borrowers were primarily NFCs, and the main lending currency was the euro, which mitigates risks due to natural hedges for export-oriented companies.

CESEE operations are important for the overall profitability of the Austrian banking sector. In 2024, Austrian CESEE subsidiaries reported net profits of EUR 5.4 billion ²¹ – accounting for nearly half of ­Austrian banks’ total profits – with Czechia and Romania making the most significant contributions. This robust performance was primarily driven by rising net interest income and margins. A further positive factor was that banks did not create new credit risk provisions, except in Romania and Croatia.

Credit quality remains robust. At 1.9%, the NPL ratio of Austrian banks in CESEE remained at a historically low level and was lower than in their domestic market for the first time. Coverage levels on NPLs were sound at 64%, reflecting the mature credit cycle in CESEE countries. In contrast, credit quality of cross-border business deteriorated, driven by a rise of NPLs to the German real estate and construction sector.

The risk-bearing capacity of local subsidiaries remained solid. As of end-2024, the aggregate CET1 ­ratio of Austrian banks’ CESEE subsidiaries stood at 19%. The loan-to-deposit ratio remained at 73%. This is especially attributable to the proactive implementation of micro- and macroprudential measures (e.g. the systemic risk buffer and the Austrian Sustainability Package ) in most countries.

Aside from political risks, risks for CESEE subsidiaries will mainly stem from potential economic headwinds. Besides global macroeconomic uncertainty, political risk in CESEE is on the rise. A more subdued economic growth outlook with negative effects on labor markets might weigh on growth and credit ­quality. The corporate loan book of CESEE subsidiaries has a strong focus on real estate activities and is therefore vulnerable to negative developments in that sector. Lower policy rates in CESEE could contribute to a decline in net interest margins with a time lag, although so far they remained surprisingly high. Still, the relatively favorable growth prospects and the CESEE region’s potential for economic convergence, high profitability and capitalization levels as well as solid local funding mean that Austrian banks’ subsidiaries are well placed to absorb potential headwinds.

3 See table A3 in the key financial indicators (annex) for details.

4 Behn M., J. H. Lang and A. Reghezza. 2025. Geopolitical risk and its implications for macroprudential policy . ECB Macroprudential Bulletin 28.

5 This box builds upon Moshammer, R. and M. Nawaiseh. 2024. Interconnections between the Austrian banking sector and debt securities markets. In: Financial Stability Report 48. OeNB. 63–74.

6 Source: ESRB 2025.

7 https://www.oenb.at/Presse/oenb-blog/2025/2025-04-15-krisensicherer-finanzsektor-wie-der-­antizyklische-kapitalpuffer-banken-staerkt.html .

8 NACE codes L, C, F and G.

9 Stage 3 loans are considered credit impaired. This is effectively the point at which there has been an incurred loss event.

10 A European banking law known as the NPL backstop was adopted in April 2019, requiring banks to book minimum levels of provisions for NPLs based on a uniform provisioning calendar and to apply a deduction to their capital to the extent their provisions fall short. The calendar determines the required level of coverage at different points in time. The longer a loan has been nonperforming, the less likely it is to become performing again and the higher the provision should be. The required coverage therefore gradually increases with time until it reaches 100%. The ­required timeline depends on whether the loan is secured (in other words backed by collateral or property) or not. If the loan is not secured, the bank must fully cover it within three years at the latest. Secured loans must be fully covered within seven to nine years. The NPL backstop is an effective tool to prevent the excessive buildup of new NPLs on bank balance sheets by creating buffers which allow banks to promptly tackle NPLs through sales or write-offs.

11 Income-producing real estate (IPRE) refers to properties that generate regular income for their owners, typically through rent payments or lease agreements.

12 See Barmeier, M., D. Liebeg and S. Rötzer. 2024. Systemic risks from commercial real estate lending of Austrian banks. In: Financial Stability Report 48. OeNB. 31–39.

13 Applies to to domestic exposures from the ÖNACE 2025 sectors F41 “Construction of residential and non-residential buildings,” F43 “Specialised construction activities” and M68 “Real estate activities.” Loans to ­limited-profit housing associations are excluded.

14 https://eur-lex.europa.eu/eli/reg/2024/1623/oj/eng.

15 Recommendation (FMSB/1/2023) on the KIM-V.

16 The KIM-V currently sets the following limits: a 90% loan-to-collateral ratio (LTC), a 40% debt service-to-income ratio (DSTI) and a maximum maturity of 35 years. The proportion of loans not meeting these criteria should not exceed 20% of new lending.

17 Central Counterparties Recovery and Resolution Regulation, entry into force in 2021.

18 See e.g. Drechsler I., A. Savov and P. Schnabl. 2021. Banking on Deposits: Maturity Transformation without Interest Rate Risk. In: The Journal of Finance 76(3). 1091–1143.

19 This fundamental principle of valuation together with structural balance sheet weaknesses of some banks is among the primary reasons for the US banking system turmoil in early 2023 that caused several institutions to leave the market.

20 Note that due to sanctions and countersanctions, capital and liquidity mobility is limited in Russia.

21 Excluding Russia, profits were 10% higher than in 2023.

Austria’s nonbank financial institutions remain stable, with limited bank interlinkages via direct investment exposures

With EUR 608 billion in size, the Austrian nonbank financial sector accounted for 32.5% of the total financial system at the end of 2024. Within the NBFI sector, investment funds (IFs) represent the largest component, holding EUR 231 billion (12.3%). Regarding investment fund types, mixed funds make up the largest share of Austrian investment funds at 45.8%, followed by bond funds at 29.5% and equity funds at 21.1%. Real estate funds account for just 3.5% but represent a highly relevant segment from a supervisory perspective. Other financial institutions (OFIs), the second largest group, stand at EUR 214 billion (11.4%). OFIs encompass a broad spectrum of heterogenous ­financial intermediaries, such as securitization companies, leasing firms and private foundations. Insurance corporations, with EUR 134 billion (7.1%) in assets under management, play a pivotal role in risk management and long-term investment, while pension funds accounted for just EUR 29 billion (1.6%).

Since the global financial crisis, the relative importance of nonbank finance has increased in Europe and around the world. According to the Financial Stability Board, the share of NBFIs in total global financial assets reached USD 239 trillion as of the end of 2023, significantly surpassing that of banks, which stood at USD 189 trillion. ²² At the European level, NBFIs accounted for 41% of financial assets as of the end of 2023 – a ratio that remains substantially higher than in Austria. While some European countries, particularly Luxembourg and Ireland, have very large NBFI sectors, banks remain the primary financial institutions within the Union.

Nonbank finance in Austria shows a similar trend, but the Austrian banking sector grew at an even higher rate. The biggest growth driver within the NBFI segment were investment funds, achieving an 18.5% gain since 2019, while insurance corporations experienced a modest contraction. Consequently, the composition of the nonbank sector in Austria shifted slightly in favor of investment funds, reaching 38% in 2024. At present, there is no evidence that the structure or the size of ­nonbank financial intermediation poses a systemic risk to the stability of the Austrian financial market.

Households and nonprofit institutions are the largest investors in investment funds, typically forming quite a stable, longer-term investor base. Domestic insurance corporations and pension funds, representing about 20% of total assets, also tend to maintain a longer-term investment horizon, mitigating sudden redemption risks. In contrast, holdings by other financial intermediaries and investment funds, together accounting for about 25% of total assets, are more flight-prone and could thus amplify stress during downturns. Finally, foreign holders, at 13.1%, also represent a potential source of volatility given their ability to rebalance across markets quickly. Nevertheless, the high share of households as well as domestic insurance corporations and pension funds in Austria act as a mitigating factor during market stress episodes. ²³ NFCs (6.3%) and the government (5.7%) each only hold a small share, while banks account for a marginal 3.1%. Despite this low level, Austrian banks are ­often indirectly connected through their ownership of investment fund management companies. This arrangement allows them to effectively mitigate risks on their own balance sheets and reduce the potential for risk transmission from investment funds.

In terms of asset allocation, debt securities make up the largest share (38.2%) of Austrian investment fund portfolios. Investment fund shares ­follow at nearly one-third of assets (32.8%), reflecting considerable interlinkages within this NBFI segment. Funds may invest in other funds to gain specific exposures, taking advantage of specialized strategies without having to replicate them from scratch. Another 23.2% is allocated to shares and other equities, highlighting the sector’s preference for debt over equity – a pattern consistent with the popularity of bond funds in Austria. Importantly, only EUR 3.7 billion (1.6% of total assets) consist of debt securities issued by Austrian banks, and just EUR 547 million (0.24% of total assets) are listed shares issued by Austrian banks. This highlights the overall low level of interconnectedness between banks and investment funds, both from an investor and an issuer perspective. Real estate holdings constitute a small share of overall assets (3.5%) and are held solely by real estate funds.

Bank deposits of investment funds have declined to just 3.1% of total assets, reaching their lowest level since 2008 and indicating limited liquidity buffers. Cash and cash equivalents typically serve as a fund’s primary defense against redemption pressures. At these reduced levels, however, managers are forced to liquidate assets earlier into distressed markets to meet sudden outflows during periods of market stress. This could lead to higher losses for funds and put additional pressure on prices – as seen during the March 2020 “dash for cash” liquidity crisis, which primarily affected corporate bond funds. ²⁴

Concerning geographical distribution, only one-quarter of assets is invested domestically, and more than half of that is allocated to other Austrian investment funds. Direct investments in domestic equity and debt securities total only EUR 14 billion, highlighting their limited role in domestic financing. By ­contrast, the euro area excluding Austria accounts for 44.7% of assets, with bonds (EUR 49 billion) ­representing the largest component. Altogether, around 70% of assets are held within the euro area. The remaining 30% is invested in other markets, such as the US, primarily in shares and other equity securities (EUR 39 billion). Accordingly, Austrian investment funds have a strong international focus in their equity portfolios, while their holdings in debt and other investment fund shares are primarily concentrated in the euro area. In turn, the relatively low level of direct domestic investments can help moderate potential systemic implications for Austria’s financial market, as risks are more dispersed across different regions. Consequently, the primary economic function of Austrian investment funds, from an Austrian perspective, appears to be household wealth accumulation, with market-based financing to the domestic economy constituting only a minor share of their overall portfolio.

In 2024, Austrian investment funds received EUR 1.5 billion of net inflows in total, while open-end real estate funds recorded net outflows of EUR 1.6 billion, equivalent to 17.6% of their assets. Although only one real estate fund showed a negative performance, their volume-weighted average return was just 1.1%. This low return, paired with the persistent structural liquidity mismatch between daily redemption rights and highly illiquid assets, led investors to sell their fund shares. As these developments strain the funds, one of which, LLB Semper Real Estate, is set to be liquidated as of October 24, 2025, they remain under close supervision. In addition, an amendment to the Austrian Real Estate Investment Fund Act ­(ImmoInvFG) came into force in 2022. As of 2027, a minimum holding period and a redemption period of 12 months will apply to Austrian real estate funds.

The environment of Austrian insurance corporations continued to be shaped by premium growth across all businesses and fluctuations in interest rates. As of end of 2024, total assets reached EUR 134 billion, a moderate 1.3% increase year on year. Total premiums climbed by 5.5% to EUR 23 billion, and health insurance recorded the largest increase (+10.7%). Although inflation and natural catastrophe events drove up claims, profitability held up relatively well, with the financial result at EUR 2.9 billion (–4.3%) and profit before tax at EUR 1.6 billion (–6.7%). Austrian insurers maintained strong capitalization – despite a 13.7 percentage point decrease, the weighted SCR coverage ratio ²⁵ remained robust at 293%.

Analyzing the asset composition of Austrian insurance corporations reveals that debt securities ­represent the largest asset class in their portfolios. This predominance of fixed-income instruments aligns with insurers’ core objective of matching expected claim outflows with predictable and stable ­inflows. Investment fund shares are following closely behind at 28%, showing significant interconnections within the NBFI sector. Slightly more than a fifth of insurers’ assets (21.5%) are held in shares and other equity. However, only a small fraction of these, EUR 1.4 billion out of EUR 28.7 billion, are publicly traded shares, indicating that most of these holdings are not part of public capital ­markets. Overall, 51.5% of their assets are invested directly in securities and equity holdings, while a further 27.8% is ­channeled indirectly through ­investment fund shares. Investments in Austrian banks debt and ­equity securities are only at EUR 3.8 billion (2.9% of total assets) and EUR 314 million (0.2% of total assets), respectively. This relatively low ­exposure results in a limited ­potential spillover risk.

Insurers also pursue alternative investment strategies, focusing on nonfinancial assets such
as real estate. These account for 8.5% of their ­balance sheet, a share which slightly declined in ­recent years because of adverse real estate market developments. Nevertheless, it is worth noting that insurers generally have a higher risk-bearing capacity in such downturns thanks to their long ­investment horizons and the hidden reserves accumulated during the previous real estate market boom. A smaller part of their assets (4.8%) consists of loans, resembling certain bank-like activities.

Examining the geographical distribution of their financial assets ²⁶ shows that Austrian insurers have a stronger home bias than Austrian investment funds. 51% of insurers’ financial assets are of ­domestic origin, followed by 33% from the rest of the euro area, and 16% from the rest of the world. Domestic shares and other equity (68% of total shares and other equity) as well as domestic investment fund shares (70% of total investment fund shares) are strongly prioritized over international alternatives, reenforcing the significant domestic market-based financing role of Austrian insurance corporations. Debt securities exhibit the highest level of international diversification, with 53% ­issued in the euro area (excluding Austria) and around a quarter in the rest of the world.

22 Financial Stability Board. 2024. Global Monitoring Report on Non-Bank Financial Intermediation 2024.

23 These investment patterns have been especially highlighted in N. Allaire, J. Breckenfelder and M. Hoerova. 2024. Fund fragility: the role of investor base. ECB Working Paper No. 2874. In that paper, the authors examine how the composition of an investment fund’s investor base influences the severity of run-like outflows during periods of market stress.

24 Falato, A., I. Goldstein and A. Hortaçsu. 2021. Financial fragility in the COVID-19 crisis: The case of investment funds in corporate bond markets. In: Journal of Monetary Economics 123. 35–52.

25 The SCR coverage ratio measures an insurer’s solvency by comparing its eligible own funds to the Solvency ­Capital Requirement (SCR) under Solvency II.

26 Financial assets are composed of debt securities, investment fund shares, shares and other equity and loans.

Macroeconomic indicators for Austria

Table A1: Bank lending  

	2019	2020	2021	2022	2023	2024
	%
Loan growth (year on year): households	4.2	3.6	5.3	3.5	–1.9	–0.6
Loan growth (year on year): residential real estate	6.1	5.5	6.9	5.0	–2.4	–1.5
Loan growth (year on year): corporations	6.2	5.0	8.7	9.2	2.7	1.9
	% of total loans
Share of variable rate loans (outstanding): households	73	69	64	59	51	47
Share of variable rate loans (outstanding): corporations	77	75	75	75	74	70
Share of variable rate loans (new lending): households	51	46	47	59	51	40
Share of variable rate loans (new lending): corporations	82	77	86	85	78	68
Source: OeNB.

Economic indicators

Selected economic measures

Interest rates and exchange rates

Consumer prices

Economic sector breakdown of households

Economic sector breakdown of nonfinancial corporations

Property market

Table A2: Debt ratios  

	2019	2020	2021	2022	2023	2024
	%
Household debt (relative to net disposable income)	92	95	94	89	81	76
Corporate debt1 (relative to gross operating surplus2)	471	466	476	457	473	582
1 Short- and long-term loans, money and capital market instruments.
2 Including mixed income of the self-employed.
Source: OeNB.

Indicators for the Austrian banking sector

Table A3: Consolidated banking data  

	2019	2020	2021	2022	2023	2024
	EUR billion
Total assets	1.032	1.136	1.197	1.200	1.216	1.265
Loans	744	752	787	814	819	859
Shares and debt instruments	137	143	147	155	173	196
Cash balance and deposits at central banks	75	164	186	161	152	136
Deposits by nonbanks	615	656	686	709	717	751
Deposits by credit institutions	101	102	106	106	113	122
Debt instruments issued	150	153	152	163	195	216
Profit	6.7	3.7	6.1	9.8	12.6	11.5
Operating income	25.0	24.8	25.8	31.7	37.0	37.4
Operating costs	16.7	16.5	16.8	18.9	18.1	18.4
Operating profit1	8.3	8.2	9.0	12.8	18.9	18.9
Risk costs	1.0	3.7	1.4	2.9	3.9	3.7
Key ratios	%
Common equity tier 1 (CET1) ratio	15.6	16.1	16.0	16.5	17.6	17.5
Leverage ratio	7.6	7.4	7.7	8.0	8.4	8.4
Return on assets (annualized)	0.7	0.4	0.6	0.9	1.1	1.0
Cost-to-income ratio	67	67	65	60	49	49
Nonperforming loan (NPL) ratio2	2.2	2.4	2.1	2.1	2.6	3.0
Coverage ratio	49	49	48	46	40	37
Liquidity coverage ratio (LCR)3	146	181	176	163	172	176
Net stable funding ratio (NSFR)3	n.a.	n.a.	135	131	134	137
1 Difference between operating income and operating costs may not equal operating profit due to rounding errors.
2 As of 2020, the NPL ratio excludes cash balances at central banks and other demand deposits.
3 Historical data calculated using the March 2024 banking sample at the highest consolidation level.
Source: OeNB.

Table A4: Unconsolidated banking data1  

	2019	2020	2021	2022	2023	2024
	EUR billion
Total assets	885	974	1.024	1.014	1.010	1.035
Loans	654	669	700	730	702	719
Shares and debt instruments	94	95	93	104	130	144
Cash balance and deposits at central banks	50	123	141	102	98	89
Deposits by nonbanks	444	474	496	505	516	529
Deposits by credit institutions	166	217	240	213	173	163
Debt instruments issued	137	140	140	160	190	206
Profit	4.8	2.7	6.5	5.0	11.0	10.6
Operating income	19.7	19.3	21.2	23.7	26.5	27.9
Operating costs	14.2	13.6	14.2	14.0	11.7	13.9
Operating profit2	5.5	5.7	6.9	9.7	14.8	14.0
Risk costs	0.2	2.5	-0.4	3.6	2.3	2.2
Key ratios	%
Return on assets (annualized)	0.6	0.3	0.7	0.5	1.2	1.2
Cost-to-income ratio	72	71	67	59	44	50
Nonperforming loan (NPL) ratio (Austria)	2.2	2.0	1.8	1.7	2.4	3.1
Coverage ratio (Austria)3	61	68	70	74	62	53
Liquidity coverage ratio (LCR)	142	174	171	155	168	174
Net stable funding ratio (NSFR)	n.a.	n.a.	129	124	127	129
1 As of 2023 and due to reporting changes, comparability to previous years’ data is limited.
2 Difference between operating income and operating costs may not equal operating profit due to rounding errors.
3 Total loan loss provisions as a percentage of NPLs in domestic business.
Source: OeNB.

Structural indicators

Table A5: CESEE subsidiaries  

	2019	2020	2021	2022	2023	2024
	EUR billion
Total assets	223	234	271	279	288	300
Loans	161	165	186	184	188	201
Shares and debt instruments	38	42	48	49	55	62
Cash balance and deposits at central banks	18	22	30	39	39	30
Deposits by nonbanks	167	178	205	211	214	221
Deposits by credit institutions	22	16	18	18	17	19
Debt instruments issued	5	11	15	12	19	19
Profit	2.8	1.9	3.0	5.2	5.5	5.4
Operating income	8.4	8.2	8.9	12.8	12.7	13.1
Operating costs	4.4	4.4	4.6	5.1	5.5	5.4
Operating profit1	4.1	3.8	4.3	7.7	7.2	7.6
Risk costs	0.5	1.3	0.5	1.0	0.3	–0.0
Key ratios	%
Return on assets (annualized)	1.3	0.8	1.2	1.9	1.9	1.8
Cost-to-income ratio	52	54	52	40	43	42
Nonperforming loan (NPL) ratio2	2.4	2.6	2.2	2.1	2.0	1.9
Coverage ratio	67	67	64	64	64	64
1 Difference between operating income and operating costs may not equal operating profit due to rounding errors.
2 As of 2020, the NPL ratio excludes cash balances at central banks and other demand deposits.
Source: OeNB.

Table A6: Financial stress indicators  

	2019	2020	2021	2022	2023	2024
	Indicator value
Austrian financial stress indicator (AFSI)	–0.72	–0.57	–0.66	0.67	–0.29	–0.59
Composite indicator of systemic stress (CISS)	0.02	0.10	0.05	0.33	0.06	0.03
Source: OeNB, ECB.

Indicators for other financial intermediaries in Austria

Mutual funds

Pension funds

Insurance corporations

Overview of the macroprudential stance in Austria

Table A7: Overview of the macroprudential stance in Austria  

As of July 1, 2025	CCoB	CCyB	O-SII buffer	SyRB	sSyRB	BBM (residential real estate)
Calibration in %	2.5	0	0.45-1.75	0.5-1.0	1.0 for CRE exposure	Guideline: 90% LTC, 40% DSTI, max. maturity of 35 years
Number of banks	All banks	n.a.	7 (consolidated)	12 (consolidated)	All banks	All banks
			8 (unconsolidated)	11 (unconsolidated)
Note: CCoB = capital conservation buffer; CCyB = countercyclical capital buffer; O-SII buffer = capital buffer for other systemically important institutions; SyRB = systemic risk buffer; sSyRB = sectoral systemic risk buffer; BBM = borrower-based measures; LTC = loan-to-collateral ratio; DSTI = debt service-to-income ratio.
Source: OeNB.