Low Interest rates Weigh on the OeNB's Profit for the Year 2013(, Vienna)
EUR 256 million of the OeNB’s profit (including corporate income tax) go to Austria’s central government
“The Oesterreichische Nationalbank (OeNB) has once again posted a solid result,” OeNB President
Claus J. Raidl pointed out at the beginning of the press conference at which the Austrian central bank presented its annual report and financial statements following its General Meeting. Raidl went on to explain that, at EUR 662 million, the OeNB’s operating profit before writedowns and transfers was one-third lower than last year, however. Following the transfer of EUR 300 million to risk provisions, writedowns on foreign currency assets and securities totaling EUR 73 million and transfers from provisions in respect of monetary policy operations of the Eurosystem amounting to EUR 9 million, the OeNB’s operating profit came to EUR 298 million in 2013, down 21 % on 2012 (EUR 377 million).
This decline, explained OeNB Governor Ewald Nowotny, was traceable primarily to the drop in what is usually central banks’ most important income component: Net interest income had plunged by 18 % against 2012 to EUR 834 million, dampened by the ECB’s low interest rate policy.
Since 2006 the OeNB has earmarked EUR 2.9 billion for risk provisions, with total risk provisions (including loss-absorbing capital) running to EUR 6.4 billion.
The central government receives EUR 256 million of the OeNB’s operating profit after writedowns and transfers (2012: EUR 349 million), which consists of EUR 75 million in corporate income tax and EUR 181 million as its statutory after-tax profit share of 90 %.
The remaining EUR 20.1 million represent the OeNB’s profit for the year (2012: EUR 28.3 million). By resolution of today’s General Meeting, EUR 1.2 million of this amount will be appropriated to pay the maximum 10 % dividend on the OeNB’s capital stock of EUR 12 million to the Republic of Austria, which holds 100 % of the OeNB’s shares, and EUR 10 million will be allocated to the OeNB Anniversary Fund for the Promotion of Scientific Research and Teaching. The remaining EUR 8.9 million will be transferred to the profit-smoothing reserve.
On account of pay increases under collective wage agreements and higher statutory social charges, staff costs (current employees) rose from EUR 131 million in 2012 to EUR 136 million in 2013. Charged with fulfilling banking supervisory tasks under Europe’s new Single Supervisory Mechanism (SSM), the OeNB moreover continued to hire supervisory staff. The number of the OeNB’s full-time equivalent employees came to 1,089 at end-2013 (2012: 1,072).
In 2013, the OeNB’s expenditure on banking supervision amounted to EUR 24.5 million, which compares with EUR 21.2 million in 2012. The Austrian Financial Market Authority refunded the statutory maximum of EUR 8 million of this amount.
Administrative expenses decreased by 3.2 % year on year, as the OeNB’s outlays for services and external personnel contracted sharply to just under EUR 82 million.
The OeNB’s net currency position declined to EUR 13.4 billion. The EUR 4.7 billion drop against
December 31, 2012, is primarily attributable to lower unrealized valuation gains on gold as at December 31, 2013, which did not enter the profit and loss account. Gold and gold receivables account for EUR 7.8 billion of the net currency position. Note that gold price changes do not impact on the OeNB’s profit and loss account.
The gold reserves of the OeNB have remained unchanged since 2007 at 280 tons. The OeNB maintains and manages Austria’s gold reserves, which are fully domestically owned, with utmost care. In line with the OeNB’s current gold storage policy, 17 % of its gold holdings are at present kept in Austria, 80 % in the United Kingdom and 3 % in Switzerland. Holding gold reserves at international gold trading centers has the essential advantage of allowing the OeNB to swiftly exchange larger amounts of gold for common reserve currencies should the need arise.
The OeNB and its staff faced manifold challenges in 2013, according to Governor Nowotny, with “high demands being placed on OeNB expertise to help overcome the crisis, implement economic policy reforms, strengthen banking supervision across Europe and resolve the problems of several individual banks in Austria.” Moreover, OeNB management had to take far-reaching decisions on its own housekeeping.
The OeNB Reforms Its Pension Provisions...
The Austrian Court of Audit reviewed the OeNB’s pension provisions and recommended adjustments especially for staff that had joined the OeNB up to the year 1998. The OeNB responded quickly by adopting an internal pension reform. In the meantime, the Austrian government has drafted a law to take effect on January 1, 2015, which would, inter alia, drastically change the employment and pension regulations of both currently employed and retired OeNB staff members. The OeNB has laid out its concerns about this bill in a comprehensive opinion. In particular, the OeNB protests against the government’s intention to enact, in defiance of the rule of law, said amendments in the form of constitutional legislation, which would drastically impede or even rule out legal review by the Austrian Constitutional Court. The OeNB’s internal pension reform is already in place, with more than two-thirds of the employees that hold individual contracts entitling them to receive their pension benefits directly from the OeNB having given voluntary consent. What is more, the reform has incorporated fundamental elements of the bill as well as the recommendations issued by the Court of Audit, and should therefore be reflected in the draft law.
... and Is about to Undergo an External Review in Search of Excellence
The OeNB needs to cut costs sustainably to withstand the mounting pressure on profitability that results from persistently low interest rates and their impact on reserves managed by the OeNB. An external consultant will thus be charged with analyzing the OeNB’s organizational and workflow structures from mid-2014
to mid-2015 with a view to exploiting synergies and cutting costs. This analysis is to focus on redefining and revising the OeNB’s business areas, making the institution more effective as well as efficient and identifying areas eligible for outsourcing. The OeNB should emerge from this external review with a leaner, more efficient and more profitable business structure.
Signs of a Recovery both in the Euro Area and in Austria
Economic growth remained very subdued in 2013, reflecting the fact that the economic crisis has not yet been fully overcome. According to the May 2014 European Commission forecast, the recovery is back on track in the euro area and – even more so – in Austria in 2014 and 2015. With growth in Austria expected to come to 1.6 % in 2014 and to accelerate to 1.8 % in 2015, Austria will maintain its growth advantage over the euro area (2014: 1.2 %, 2015: 1.7 %). Inflation is expected to stay significantly below 2 % during this period both in the euro area and in Austria, but over the medium term, it is likely to align itself with the ECB’s price stability objective of keeping inflation below, but close to, 2 %.
The overall improvement is traceable not only to the economic, fiscal and financial market policy measures taken at the national and European level, but in particular also to the flexible and active monetary policy pursued by the Eurosystem. Creating conditions that foster stronger growth, reduce the high unemployment in Europe and keep inflation close to the price stability objective remains a challenge. Other important action points are fiscal consolidation and the stabilization of financial markets. The serious crisis in Ukraine and problems in some other Eastern European countries might, however, pose a risk to the Austrian financial sector, which is heavily invested in the region. Against this background, stated OeNB Governor Nowotny, “the OeNB’s macroeconomic and financial market analyses are an essential tool for detecting worrying developments early to be able to take appropriate countermeasures.”
Top Challenges in Banking Supervision: Banking Union and New Supervisory Framework
Governor Nowotny stressed that the European Union had made great strides in building the banking union, “as it has not only laid the legal foundation for the SSM, but has also paved the way for the ECB to assume, in close cooperation with the national competent supervisory authorities, direct prudential oversight of the euro area’s systemically important banks.”
Before the ECB takes over the operational oversight function on November 4, 2014, 128 banks across Europe (including 6 Austrian banks) are currently being reviewed in a comprehensive assessment. This assessment, which comprises a review of the quality of banks’ assets and a stress test, is scheduled to be completed in the fall of 2014. In Austria, the comprehensive assessment is proceeding according to schedule.
Overall, the Austrian banking sector is faced with the difficult task of improving profitability further and resolving problems at a few banks undergoing restructuring. Further challenges arise especially from the Basel III-induced changes to the supervisory framework, which spells out new requirements and instruments in the area of both micro- and macroprudential supervision, as well as in terms of handling credit institutions undergoing restructuring. The OeNB, together with the Austrian Financial Market Authority, is responsible for conducting on-site banking inspections and off-site banking analyses and has dedicated considerable effort to this behind-the-scenes work that the public is rarely aware of.
Top Innovations: Single Euro Payments Area and New Euro Banknote Designs
The Single Euro Payments Area (SEPA) will be completed at the beginning of August 2014, when all euro credit transfers and direct debits within the euro area will use the International Bank Account
Number (IBAN). Moreover, the OeNB’s service for processing cross-border retail payments in euro, Clearing Service.International, was implemented in 2013. In May 2013, the newly issued EUR 5 banknote marked the launch of the improved second series of euro banknotes, also known as “Europa” series, that comes with cutting-edge security features. The EUR 10 banknote is scheduled for introduction in September 2014.
President Claus J. Raidl and Governor Ewald Nowotny extended their thanks to the Governing Board and each and every staff member of the OeNB, who – in the face of a difficult economic environment and formidable in-house challenges, combined with partly harsh and also unfair criticism leveled by the public – had done an excellent job also in 2013. By way of conclusion, both OeNB representatives underlined the OeNB’s commitment to fulfilling its core tasks – i.e. maintaining price stability and financial stability – as a key independent economic policymaker, think tank as well as competence center.
For more details about the Financial Statements for 2013 and about the activities of the OeNB in 2013, see the OeNB’s Annual Report 2013 (www.oenb.at). As the OeNB’s Sustainability Report, the Annual Report also contains the Intellectual Capital Report 2013 and the Environmental Statement 2013.