Systemic risk analysis

Why – and how – does the OeNB analyze risks to the financial system?

Contributing to the maintenance of financial stability is one of the OeNB’s key tasks. In doing so, the OeNB seeks to identify risks early, to assess their systemic relevance and to communicate them to market participants and decision-makers. The OeNB also clearly signals when action is needed and – if necessary – prepares policy options, including impact assessments.

Financial stability analysis at the OeNB encompasses monitoring the domestic financial sector’s profitability and liquidity as well as its resilience both at the macroprudential level (analysis of system stability) and at the microprudential level (analysis of individual banks under the regulatory framework). Furthermore, the OeNB analyzes developments in stock, credit and currency markets.

In line with its broader financial stability mandate, the OeNB also analyzes developments in the insurance, asset management (mutual fund), pension fund and severance fund sectors. Apart from providing economic assessments, the OeNB looks into the potential for contagion between financial intermediaries.

What are currently the main risks to the Austrian banking system?

Austria’s banks have many strengths: the predominance of traditional lending and deposit taking, sound liquidity positions, and the broad distribution of its exposure in Austria and in Central, Eastern and Southeastern Europe.  However, certain structures and developments in the domestic banking sector may represent risks to the entire system, in particular

  • the severe competition in the Austrian banking market and the resulting narrow interest margin and weak profitability,
  • the strong focus of large Austrian banks’ exposure on Central, Eastern and Southeastern European countries that have a heightened risk profile and the local subsidiaries’ high dependence on intragroup liquidity transfers (Sustainability of Large Austrian Banks’ Business Models),
  • the high stock of foreign currency loans both in Austria and in Central, Eastern and Southeastern Europe, which may cause an increase in defaults if the local currency depreciates (Foreign Currency Loans and Repayment Vehicle Loans),
  • the sharp decline in credit quality, in particular in Central, Eastern and Southeastern Europe, and the danger of a further deterioration,
  • large domestic banks’ below-average capitalization, and – consequently – low risk-bearing capacity compared with their international peers, and
  • potentially, the strong increase in real estate prices in certain areas in Austria.