Capitalisation improved, cost-income ratio worse, financial stability good

Presentation of the 51st Financial Stability Report of the OeNB

Austrian banks again made very good profits in 2025 and used them to strengthen their capital. This contributes to financial stability remaining good even in times of heightened geopolitical uncertainty. While lending picked up slightly, credit quality stabilised and did not deteriorate further. However, the loan quality of small and medium-sized enterprises and commercial real estate (CRE) companies remains strained.

Geopolitical situation clouds economic outlook, but good growth prospect for the CESEE region, which is important for Austrian banks

“The war in the Middle East and the subsequent rise in energy prices have again been causing great uncertainty. This and the direct impact of the war on prices are weighing on the growth prospects of almost all sectors in Austria and Europe," says OeNB Governor Martin Kocher. In its outlook of March 2026, the Oesterreichische Nationalbank (OeNB) expected Austria’s economy to grow at a subdued 0.5% in the baseline scenario; the unemployment rate was projected to remain at 7.5%. The economy has proved quite robust since the forecast was published, despite higher and volatile energy prices. We therefore do not change our growth forecast; the inflation forecast is subject to some upside risk, though. The growth outlook for Central, Eastern and Southeastern Europe (CESEE), where Austrian banks have around one third of their credit exposure, is slightly better and continues to have a positive impact.

Banking sector is highly profitable and well capitalised, but coverage of credit risks has deteriorated further due to lower provisioning

Robust earnings and declining risk provisions contributed to the banking sector achieving a high profit of EUR 11.8 billion in 2025 despite rising operating costs. The improvement compared to the previous year was driven by higher profits of major banks, especially from domestic business. Austrian banks’ operations in CESEE also contributed to the good profit situation and the region is set to become even more important given recent acquisitions. "Banks have used the lion’s share of previous profits to strengthen their capital base. The sector's Common Equity Tier 1 (CET1) ratio reached a record high of 19.0%. This is particularly welcome given increasing uncertainties in the current geopolitical and economic environment,” says OeNB Director Thomas Steiner.

In 2025, domestic lending by Austrian banks continued to gain traction due to stronger growth in mortgages to households, while lending to businesses remained subdued. The share of non-performing loans (NPL ratio) stabilised at 3% following recent increases. That said, the NPL ratio for loans to small and medium-sized enterprises and CRE loans was still rising in 2025, to 6.3% and 8.3%, respectively (compared to 6.1% and 6.3% at end-2024), and hence well above average. As loan loss provisioning decreased in 2025, the consolidated coverage ratio fell to below 40%.

Real estate-related lending remains crucial for financial stability and banking supervision

Since 2022, when interest rates started to increase, Austrian banks have seen a sharp increase in the NPL ratio of CRE loans. This increase is particularly pronounced in commercially funded housing, where over 14% of loans are non-performing. Compared to the rest of Europe, the Austrian banking sector stands out not only regarding this increase in NPL ratios, but also regarding the CRE share in total corporate lending. Given that real estate plays a crucial role as collateral in NPL workouts, their conservative valuation is all the more important from a financial stability perspective. Against this backdrop, the Financial Market Stability Board recommended strengthening the risk-bearing capacity of banks in the CRE segment by increasing the sectoral systemic risk buffer (sSyRB) to 2% by mid-2026 and to 3.5% by mid-2027. Also, a CRE dashboard regularly updated by the OeNB allows all market participants to monitor this segment, which is important for Austrian banks.

Residential real estate lending has recovered visibly from its low point at the end of 2023, thanks to lower interest rates, while lending standards remain high and in line with the Austrian Financial Market Authority’s relevant circular and the Financial Market Stability Board’s guideline.¹

Recommendations by the OeNB

Amid the recent rise in geopolitical risks, it is important for Austrian banks to preserve their resilience so that they remain able to serve the evolving financing and investment needs of households and enterprises in difficult economic times. To keep systemic risks at bay, the OeNB recommends that banks:

• ensure adequate credit risk management, including
  • the active management of NPLs (and their determined reduction),
  • higher provisioning (especially for the unsecured part of loans) and
  • conservative collateral valuations;
• comply with stricter regulatory requirements for commercial real estate loans (in particular the sectoral systemic risk buffer);
• maintain the good capital level;
• stay committed to sustainable lending standards for residential real estate financing; and
• ensure sustainable profitability, especially by
  • maintaining structural cost discipline and
  • investing in the future, i.e. digitalisation and cybersecurity.
     

¹ FMA circular on the sound granting of private residential real estate loans and FMSB guideline from the press release for the 44th meeting of the Financial Market Stability Board.