OeNB posts improved operating profit of EUR 286 million in 2017(, Vienna)
OeNB reforms prove effective: administrative expenses down at 2009 level, salary expenses stable
“In 2017, the OeNB’s operating profit came to EUR 286 million, up 7% against the profit of EUR 268 million it posted in 2016,” OeNB President Claus J. Raidl pointed out at the press conference at which the Oesterreichische Nationalbank (OeNB) presented its 2017 annual report and financial statements following its General Meeting. Amid continued low interest rates and a stronger euro, the OeNB’s sound reserve management and investment performance in 2017, together with efficient cost management, made for yet another solid operating profit.
In 2017, the central government’s 90% share of profit amounts to EUR 174 million and the OeNB’s corporate income tax equals around EUR 72 million. “In line with the National Foundation Act, the OeNB will transfer EUR 59.5 million of the central government’s share of profit to the National Foundation for Research, Technology and Development after deducting the 2017 investment income (EUR 7.1 million) on the funds allocated to the National Foundation,” President Raidl continued to explain. Over the ten-year span from 2008 to 2017, the central government’s share of profit totaled EUR 2.1 billion. Combined with around EUR 800 million in corporate income tax, the central government received EUR 2.9 billion from the OeNB over the past decade.
In light of the prevailing low level of interest rates, the OeNB’s net interest income increased slightly in 2017, to EUR 664 million, which reflects a continuation of the trend that started in 2015.
The OeNB transferred EUR 275 million to its risk provisions in 2017, given increased interest rate risks. These risks arise primarily from the Eurosystem’s ongoing monetary policy asset purchase programs and longer-term refinancing operations. While the purchase programs will generate only low interest income in the coming years (resulting from low yields on long-term assets), the interest expense on credit institutions’ balances on central bank accounts could rise if key interest rates increase, thus cutting into the OeNB’s future net interest income. Risk provisions totaled about EUR 4 billion at year-end 2017. Total provisions for financial risks and loss-absorbing capital stood at EUR 7.6 billion on December 31, 2017.
The OeNB’s net currency position decreased to EUR 18.3 billion in the year under review, with gold and gold receivables accounting for EUR 9.7 billion thereof.
At EUR 147 million, staff costs declined by a total of EUR 10 million in 2017 against the previous year. This is above all attributable to the fact that in 2016, exogenous factors (recognition of previous service credit in line with a ruling of the Court of Justice of the European Union, lower discount rate for calculating personnel provisions) had triggered higher transfers to the provisions for severance payments. Coming to EUR 121 million in 2017, salary expenses remained virtually unchanged year on year. At EUR 81 million, administrative expenses in 2017 equaled the level recorded in 2009, down almost EUR 3 million against 2016. As pointed out by OeNB Governor Ewald Nowotny, “credit for the OeNB’s overall positive track record in curbing its staff costs and administrative expenses is due to its resolute push in recent years for both internal reforms and cost efficiency.”
In 2017, expenses for retirement contracted by nearly EUR 34 million year on year, to EUR 109 million. Pension payments in 2017 totaled EUR 125 million, of which EUR 32 million were covered by investment income on the pension reserve. The remainder of the pension expenses was reported in the profit and loss account. The OeNB’s other legal and contractual obligations were markedly lower in 2017, given that the OeNB, in light of one-off effects, had made higher transfers to the provisions for supplementary contributions to pension plans in the year before.
The OeNB’s profit for the year 2017 came to EUR 19.3 million. By resolution of today’s General Meeting, EUR 1.2 million of this amount will be appropriated to pay the maximum dividend (10%) on the OeNB’s capital stock of EUR 12 million to the central government, which holds 100% of the OeNB’s shares. Another EUR 10 million will be allocated to the OeNB Anniversary Fund for the Promotion of Scientific Research and Teaching, and the remaining EUR 8.1 million will be transferred to the profit-smoothing reserve.
President Raidl thanked two members of the OeNB’s General Council, Anna Maria Hochhauser and Werner Muhm, whose terms of office ended on February 28, 2018, for their long-standing service on the supervisory board. He welcomed Bettina Glatz-Kremsner and Peter Sidlo, who were appointed new General Council members by the federal government on March 1, 2018.
Adjustment of monetary policy
In 2017, the Austrian economy experienced a boom phase, growing by around 3% in real terms, a figure last seen in 2007. This positive development will continue in 2018. Real GDP in the euro area expanded by 2.5% in 2017, and, at 1.5%, the rate of inflation moved back closer to the level consistent with the ECB’s definition of price stability (of below, but close to, 2% over the medium term). These favorable developments prompted the Eurosystem to adjust its monetary policy stance. The monthly volume of asset purchases was reduced, for instance. Between January and September 2018, assets in the amount of EUR 30 billion net (down from EUR 60 billion and EUR 80 billion, respectively) will be purchased per month. In 2018 and 2019, according to the ECB's forecast of March 2018, real GDP growth in the euro area will remain above or around 2%, with inflation expected to reach 1.4% in both years.
Proportionality in regulating and supervising banks
In the area of banking supervision, the work of previous years, also undertaken together with the Single Supervisory Mechanism (SSM), has continued to bear fruit. Austrian banks’ profitability has improved further, and their resilience to crises has increased. This notwithstanding, the favorable cyclical conditions should be used to further improve the efficiency of the banking system. Moreover, the OeNB advocates more proportionality in regulating banks by considering their sizes and the risk inherent in their business models.
Return of gold scheduled to be complete in summer 2018
Having already made significant strides in returning Austria’s gold reserves to Vienna, the OeNB is set to complete this project ahead of schedule. Of a total of 90 tons of gold originally stored in London, the OeNB already transferred 70 tons to Vienna between 2015 and 2017; the return of the remaining 20 tons is likely to be complete in the summer of 2018. Then, half of Austria’s gold reserves, i.e. 140 tons, will be stored in Austria.
Cash remains most popular means of payment in Austria
A Eurosystem survey on payment behavior in euro area countries showed that cash continues to be by far the dominant payment instrument in Austria, as well as in Germany and Slovenia, where 80% or more of all transactions are conducted with cash. The presentation of the new EUR 100 and EUR 200 banknotes of the Europa series is scheduled for the summer of 2018. These last two denominations of the Europa series will then be issued in the first half of 2019.
Exchange deadline for ATS 500 and ATS 1,000 banknotes soon to expire
The exchange deadline for the following two Austrian schilling banknotes expires on April 20, 2018: ATS 500 “Otto Wagner” and ATS 1,000 “Erwin Schrödinger.” After that date, these two banknotes may no longer be exchanged into euro and will become worthless. The banknotes may be exchanged both at the OeNB and at its regional branch offices. Austrian schilling banknotes of the last series issued before the introduction of the euro will retain their value and can be exchanged for an unlimited period of time.
Gearing up for the future
The collection and processing of financial statistics and the provision of reliable, secure and efficient payment systems are among the OeNB’s core tasks requiring permanent adjustment to new technologies. In the field of statistics, 2017 saw the completion of a multi-year project overhauling statistical reporting and internal data processing. At end-2018, the Eurosystem’s new TARGET Instant Payment Settlement (TIPS) service will become operational. TIPS will enable the settlement of payments in real time and around the clock, 365 days a year.
So-called cryptocurrencies are spreading and increasingly becoming a topic of discussion. In this context, the OeNB has already issued warnings, pointing to the substantial risk involved above all for consumers buying such virtual currencies. The OeNB supports the establishment of a board of regulators for fintechs, as proposed by the Federal Ministry of Finance, and so-called initial coin offerings (ICOs).
The European Commission’s recently launched Action Plan on financing sustainable growth, which promotes a greener and cleaner economy, presents new challenges. The Action Plan connects finance with the specific needs of the European and global economy for the benefit of the planet and our society and thus supports the implementation of the Paris Agreement on climate change. From the OeNB’s perspective, Governor Nowotny explained that “the OeNB has published an annual sustainability report since 2007; moreover, the OeNB has been recertified according to EMAS (Eco-Management and Audit Scheme) on a regular basis since 1999, which highlights its strong commitment to sustainability. Substantial innovations and measures have been introduced over the past few years with a view to making the OeNB a greener institution, and they are beginning to bear fruit. The OeNB’s major ecological indicators (electricity, heat, water and paper consumption) have gone down markedly in recent years. In 2017, these indicators were consistently below the ecological reference values defined for companies in Austria.”
At the end of the press conference, President Raidl and Governor Nowotny, on behalf of the OeNB’s General Council and Governing Board, expressed their gratitude to the entire OeNB staff for their extraordinary commitment to safeguarding price stability and financial stability both in Austria and in the euro area in 2017.
For more details about the 2017 financial statements and about the activities of the OeNB in 2017, see the OeNB’s Annual Report 2017 (www.oenb.at). As the OeNB’s Sustainability Report, the Annual Report also contains the Intellectual Capital Report 2017 and the Environmental Statement 2017. The English version will be available by the end of April 2018.
1 On July 14, 2017, the amendment to the Federal Act governing the National Foundation for Research, Technology and Development was promulgated. It established the legal basis for the transfer of an additional EUR 100 million per year to the National Foundation for Research, Technology and Development in 2018, 2019 and 2020. These funds come from bank levy receipts (EUR 33.33 million) and from the OeNB (EUR 66.67 million).