Foreword by the President

Ladies and gentlemen,

In 2019, the difficult global macroeconomic environment resulting from mounting trade tensions between the U.S.A. and China and several Brexit extensions weighed on economic activity in the euro area. In addition, the faltering German economy had an impact on neighboring countries, including Austria. The reporting year also saw climate change take center stage in the policy debate and new leaders take over at the European Commission, the ECB and the IMF.

In this challenging overall environment, Austria’s economy proved competitive and robust, with Austria’s GDP growth mildly outperforming the euro area average. Amid dwindling global demand, growth will weaken slightly in 2020, but, according to recent forecasts, it will pick up speed again in the coming years.

For the Oesterreichische Nationalbank (OeNB), the year 2019 was all about change. In September 2019, the Eurosystem adopted another package of expansionary monetary policy measures to be implemented by the national central banks. A review of the Eurosystem’s monetary policy strategy was first discussed in 2019 and will intensify in 2020 under the auspices of the new President of the ECB. Discussions will also focus on central bank digital currency (CBDC) and on how to consider “green finance” in monetary policy while maintaining both price and financial stability.

In banking supervision, emphasis was put on strengthening banks’ long-lasting resilience, ensuring sustainable lending, tackling digitalization and IT risks as well as implementing the finalized Basel III reform package. Some ten years after the financial crisis, the banking system is robust and healthy. Austria’s present banking supervisory setup and financial market received an outstanding rating under the Financial Sector Assessment Program (FSAP) conducted by the IMF in 2019. Concluding a joint Memorandum of Understanding, the OeNB and the Austrian Financial Market Authority (FMA) optimized their cooperation and laid down the supervisory objectives for 2020. Financial intermediaries will need to adopt methods to effectively manage climate change-­related financial risks. The OeNB will also continue monitoring the fintech ecosystem, i.e. technology-driven innovations in financial services.

In 2019, the OeNB achieved another solid operating profit thanks to its investment strategy, which relied on stepped-up diversification and risk reduction measures given the difficult market conditions. The new EUR 100 and EUR 200 banknotes went into circulation in the reporting year; EUR 500 banknotes, by contrast, were no longer issued.

Between May and September 2019, four new members of the OeNB’s Governing Board took the baton from their predecessors. The reassignment of duties within the Governing Board reflects the core competencies of the four executive directorates and increases the OeNB’s efficiency. It took effect on January 1, 2020. The work begun in 2019 to deliver a new strategy for the OeNB will be completed in the course of 2020. In 2020, Austria celebrates 25 years of EU membership. Public opinion of EU membership is high according to recent surveys, and, at some 80%, satisfaction with the euro is even higher.

In closing, let me express my gratitude to the entire staff of the OeNB and of the OeNB’s subsidiaries as well as to the members of the Governing Board and of the General Council of the OeNB for their excellent and productive cooperation in 2019.

Vienna, March 2020

Harald Mahrer, President

Foreword by the Governor

Ladies and gentlemen,

The euro area economy continued to slow down in 2019 amid difficult global economic conditions. Real GDP growth in the euro area, which amounted to a mere 1.2% in 2019, was mainly driven by domestic demand. On top of that, the price stability target of keeping inflation “below, but close to, 2%” seemed out of reach in the reporting year. Following detailed ­discussions of the pros and cons, the Governing Council of the ECB therefore adopted a comprehensive ­package of measures in September 2019, thus maintaining a course of highly accommodative ­monetary policy. The new measures are meant to provide significant stimuli to ensure favorable financing conditions, which will, in turn, fuel euro area growth and help meet the price stability objective. Taking note of concerns about ­possible undesirable side effects of its nonstandard monetary policy measures, the Governing ­Council of the ECB keeps monitoring developments on this front.

In early 2020, the Eurosystem launched a review of its monetary policy strategy that will focus on the price stability objective and is expected to be concluded by the end of the year. Not only will the Euro­system review the effectiveness and the potential side effects of the monetary policy toolkit developed over the past decade, but it will also include other considerations, such as financial stability, employment and environmental sustainability as well as communication practices, in this exercise. Guided by the principles of thorough analysis and open minds, the Eurosystem will engage in an intensive dialogue with all stakeholders and the general public. The OeNB will take an active role in this review process to ensure that the Eurosystem’s future monetary policy strategy adequately reflects structural economic shifts.

Austrian banks managed to record a consolidated end-of-period profit of EUR 5.3 billion in September 2019, even though they were faced with growing risks last year. Moreover, Austrian banks’ ratio of nonperforming loans and capitalization have improved. This notwithstanding, banks will have to adjust their business models to master the huge structural challenges the banking sector has come up against.

Following the reassignment of management duties within the Governing Board, which took effect on January 1, 2020, the OeNB has, under its new senior management, started to formulate its new strategy for the years ahead. The new strategy will center on the following horizontal issues: financial innovation, financial education, financial market strategy, communication and sustainable human resources management. In parallel, the OeNB will define the strategic orientation of its individual business areas with a view to ­future-proofing and innovating the ways in which it fulfills its tasks.

To conclude, I would like to thank all OeNB employees, the President and Vice President, the General Council as well as the other members of the Governing Board for their trust and excellent cooperation in the past few months.

Vienna, March 2020

Robert Holzmann, Governor

The General Council of the OeNB comprised the following members on December 31, 2019

Harald Mahrer

President

Term of office:

September 1, 2018, to
August 31, 2023

Barbara Kolm

Vice President

Term of office:

September 1, 2018, to
August 31, 2023

Bettina Glatz-Kremsner

Director General of
Casinos Austria AG and of Österreichische Lotterien Ges.m.b.H.

Term of office:
March 1, 2018, to
February 28, 2023

Stephan Koren

Chairman of Wüstenrot Wohnungswirtschaft reg. Gen.m.b.H.

Term of office:
September 8, 2018, to
September 7, 2023

Franz Maurer

Partner at LIVIA Group

Term of office:

May 23, 2018, to
May 22, 2023

Walter Rothensteiner

Chairman of the Austrian Raiffeisen Association

Term of office:

August 1, 2019, to
July 31, 2024

Peter Sidlo

Term of office:

March 1, 2018, to
February 28, 2023

Christoph Traunig

Executive Partner of
St. Stephan Capital Partners

Term of office:

September 1, 2018, to
August 31, 2023

Harald Waiglein

State Commissioner

Director General,

Directorate General Economic Policy and Financial Markets,

Federal Ministry of Finance

Term of office:

from July 1, 2012

Alfred Lejsek

Deputy State Commissioner

Head,

Directorate Financial Markets,

Federal Ministry of Finance

Term of office:

from April 1, 2016

Birgit Sauerzopf

Central Staff Council

Chair

Christian Schrödinger

Central Staff Council

Deputy Chair

The OeNB’s ownership structure and decision-­making bodies

The OeNB’s owner

Functions of the General Council

Also, the General Council must approve ­appointments of members of supervisory boards and executive bodies of companies in which the OeNB is a shareholder. Appointments of the second executive tier of the OeNB itself must likewise be approved by the General Council. Finally, the General Council has the exclusive right of decision on issues detailed in Article 21 paragraph 2 Nationalbank Act, e.g. on submitting to the Austrian federal government nominations of three candidates for appointments to the OeNB’s Governing Board by the Federal President, on defining general operational principles for all matters outside the remit of the ESCB, on approving the financial statements for submission to the General Meeting, and on approving the cost account and investment plan for the next financial year.

Composition of the General Council

Personnel changes of the General ­Council (between January 1, 2019, ­
and March 5, 2020)

Having been appointed Vice Governor of the Oesterreichische Nationalbank with effect from July 11, 2019, Gottfried Haber resigned from his mandate as General Council member (term of office from May 23, 2018, to May 22, 2023) with effect from July 10, 2019. This mandate has not been filled to date either.

On July 10, 2019, the federal government decided to reappoint Walter Rothensteiner General Council member with effect from ­August 1, 2019, for a period of five years (term of office from August 1, 2019, to July 31, 2024). On January 15, 2020, Walter Rothensteiner ­resigned from his mandate as General Council member with effect from end-January 2020. This mandate has not been filled to date.

At the meeting of the Central Staff Council of October 10, 2019, Birgit Sauerzopf was elected Chair of the Central Staff Council. Birgit Sauer­zopf replaced Robert Kocmich, who retired with effect from October 1, 2019, as representative delegated to the General Council by the Staff Council (pursuant to Article 22 paragraph 5 Nationalbank Act). Furthermore, at the meeting of the Central Staff Council of October 10, 2019, Christian Schrödinger was elected Deputy Chair of the Central Staff Council. Christian Schrödinger replaced Birgit Sauerzopf as alternate representative delegated to the General Council by the Staff Council (pursuant to Article 22 paragraph 5 Nationalbank Act).

Governing Board

The Governing Board is composed of the Governor, the Vice Governor and two other members, all of whom are appointed by the Federal President acting on a proposal from the federal government. Each appointment is made for a term of six years. Persons holding office may be reappointed. The Governor of the OeNB is a member of both the Governing Council and the General Council of the ECB. In this capacity, the Governor and his representative are not bound by the decisions of the OeNB’s Governing Board or those of the OeNB’s General Council, nor are they subject to any other instructions.

Further provisions pertaining to the Governing Board are set out in Articles 32 through 36 of the Nationalbank Act. See www.oenb.at for additional information about the Governing Board of the OeNB.

Changes to the Governing Board of the OeNB

On December 31, 2019, the Governing Board of the OeNB comprised the following members

From left to right: Vice Governor Gottfried Haber, Governor Robert Holzmann,
Executive Director Eduard Schock, Executive Director Thomas Steiner

The OeNB’s organization

How Austrians bank and pay in an increasingly ­digital world

OeNB survey suggests that digital ­payments are on the rise

People increasingly bank with mobile devices

The take-up of online banking continues to vary significantly according to sociodemographic characteristics. While 84% of under 35 year olds bank online, only 15% of over 65 year olds do the same. There is also a significant divide between men (63%) and women (52%) as well as by income and level of education (82% of ­respondents that have completed high school; 25% of unskilled respondents).

The use of online banking is closely correlated with the frequency of visits to bank desks. Among bank customers that do not use online banking, 61% visit a bank desk at least once a month, while this is true of a mere 23% of online bankers. Of the latter, 50% use face-to-face banking services once a year at most. Increased future use of online banking is therefore expected to go hand in hand with a further reduction in the demand for bank teller services. Interestingly, urban and rural areas do not differ much in terms of the use of online banking, which is relevant for ensuring banking services in rural areas. In villages with up to 5,000 inhabitants, some 55% of the population banks online; this figure comes to 64% in cities with over 50,000 inhabitants.

Apart from the trend from face-to-face ­toward online banking, self-service banking is on the rise too. Overall, some 39% of the population continues to bank face to face at least once a month, and this share has not fallen significantly since 2018. At the same time, the share of people using the self-service area of a bank branch at least once per month has increased from 58% to 63%.

As more and more people use online banking, digital access to banking services might also influence which bank people choose. However, according to the 2019 survey, just around 2% of Austrians use so-called Internet or virtual banks, i.e. branch-less banks, as their main bank. Apart from technology changing the face of banking, new legislation ³ granting third-party providers access to bank accounts or ­account information has made it possible for new players to come on the scene. Use of such new services is not yet widespread, though, ­except for providers of digital payment services.

Another innovation are instant payments, which are settled around the clock, every day of the year, within a few seconds. They provide the basis for developing new solutions for peer-to-peer as well as consumer-to-business payments that may, for instance, be initiated via smartphones. Such apps are already widely used in other countries, such as Sweden. The OeNB’s fall 2019 survey found that about 7% of respondents use an app to transfer money to, or receive money from, other persons at least once a month.

In light of the changes evident so far, the OeNB is also interested in customer satisfaction in the Austrian banking sector. 95% of ­respondents are, generally speaking, very or rather satisfied with their bank. In greater detail, highly positive ratings were also established for the opening hours of bank branches, bank branch proximity, the perceived quality of financial ­advice, and online services. Satisfaction with account management fees is somewhat lower (57%).

Cash continues to be in high demand

Share of contactless payments strongly on the up

In fall 2019, no less than 60% of respondents said that they use their debit card (usually their ATM card) at least once a month to make contactless payments without PIN entry (2018: 48%). With some 80% of respondents making PIN-based debit card payments at least once a month, around three-quarters of debit card ­users already use their cards also without PIN entry. However, use of contactless payments without PIN entry varies strongly with age: the share of under 35 year old users equals 83%, while the share of over 65 year olds is just 27%.

In the years ahead, not only card payments, but also payments via smartphone are likely to increase markedly. The survey conducted in fall 2019 revealed that around 8% of respondents used mobile payment innovations.

Chances are that cashless payments will ­increase at an accelerating pace in the coming years. For one thing, consumers will increasingly go cashless for smaller amounts; for another, evidence from other countries shows that also late adopters, i.e. above all older consumers and people with lower incomes, tend
to use contactless payments more with time. Third, a high share of younger persons is ­already used to making cashless payments and is unlikely to change its payment habits in the future. These expected shifts notwithstanding, cash continues to be the preferred means of payment for a considerable share of Austrians. 42% of the respondents of the 2019 survey said that they prefer to pay their grocery shopping worth up to EUR 50 with cash. Moreover, ­almost all respondents had used cash in the ­previous month. In contrast, a survey conducted by the Swedish central bank in 2018 showed that only 60% of the respondents had used cash during the past month, and a mere 13% said that their most recent payment had been made in cash. ⁷

In 2019, two-thirds of those surveyed in Austria agreed that it was essential for cash to stay, which mirrored the 2018 result. Another 28% said that, while it was alright with them if fewer and fewer agents were to accept cash, they would not want to live entirely without it. Only 3% found that they could do without cash (the rest had no view).

The fact that cash is still popular is, for ­instance, also reflected in a lesser known phenomenon, namely the persistently high demand for cash, which – in spite of the accelerating trend to cashless payments – has even risen in the past ten years. This increase may be attributable to specific temporary factors, such as the use of cash as a store of value in response to the financial crisis and low interest rates on deposits at banks. No matter whether these factors recede again over time, the development so far shows that a trend toward cashless payments does not automatically imply that the overall demand for cash will diminish or even cease to exist.

The survey results about Austrians’ views and payment behavior have reaffirmed the OeNB’s pivotal role in providing Austria with banknotes and coins. Cash supply functions and services are core activities of the OeNB, which is worth stressing in light of concerns ⁸ fueled by political and media debates about a government-­led abolition of cash.

Innovation and reform pressure ­transform payment services

Digital foreign currencies (e.g. stablecoins such as Libra) are unlikely to become more ­attractive than the local currency, especially if the latter is as strong as the euro. After all, digital payment methods in euro (via cards, smartphones, etc.) are widely available and far advanced. In light of the ongoing digitalization of the business world, pressure has, however, been mounting to make payments ever faster and more secure. For this reason, the Eurosystem implemented TARGET Instant Payment Settlement (TIPS) in 2018, which enables payment service providers to offer secure fund transfers in euro to their customers in real time. With TIPS, the Eurosystem was among the first central banks to support instant payments. In the U.S.A., the Federal Reserve ­System took up work on a similar system in 2019. Last year, the first Austrian banks became participants of TIPS. Until November 2021, the Euro­system’s payment infrastructure will ­undergo an overhaul that will also markedly benefit retail ­customers. At the same time, other components of the large-value TARGET2 payment system will likewise be modernized.

Given the trend to digital payments, it is important to develop pan-European solutions allowing end users to make swift payments. This helps ensure that the euro area remains a state-of-the-art payment area. In the near future, it will also be key to provide similar solutions to quickly transfer funds outside the euro area.

As long as payment solutions in euro keep pace with evolving requirements (as related to, say, efficiency, costs, user-friendliness and speed), the Eurosystem sees no need to issue a digital euro for end users. This notwithstanding, central banks started years ago to investigate technical aspects and potential consequences of central bank-issued digital money to stand ready to answer questions that might be of public interest in this respect. In 2019, the OeNB co-­organized a macroeconomic workshop with the Bank for International Settlements and published a paper on this topic. ¹⁰ This way, the OeNB actively contributes to conceptual and operational work undertaken within the Eurosystem, where a high-level working group is tasked with developing a joint position on a central bank-issued digital euro until June 2020.

The OeNB contributes to safeguarding
price stability and financial stability

Headwinds for growth and inflation in the euro area

The euro area economy continues to slow down

The global macroeconomic environment also had a dampening effect on euro area growth. Within the euro area, problems in the German economy (e.g. low export demand) had knock-on effects on neighbouring countries. Thus, the economic slowdown in the euro area, which had started in 2018, continued in 2019. As evidenced by Eurosystem staff macro­economic projections, euro area real GDP growth dropped from 1.9% in 2018 to 1.2% in 2019. In 2019, euro area growth was mainly driven by domestic demand, whereas the growth contribution of net exports was negative.

Euro area HICP inflation remains below price stability target

The final terms were communicated in September 2019: The interest rate to be applied was set at the average rate used in the Euro­system’s main refinancing operations over the life of the respective TLTRO. For banks whose eligible net lending exceeds their benchmark net lending, the TLTRO III rate will be lower, and can be as low as the average interest rate on the deposit facility prevailing over the life of the respective TLTRO III. Each operation has a maturity of three years, with the option of early repayment starting two years after the ­respective settlement date.

TLTROs serve to keep funding costs low for euro area banks. This affects the economy
via two avenues. First,
TLTRO funding creates an incentive for banks
to pass on their own ­favorable financing conditions to the real economy in the form of low interests on loans, thus stimulating loan ­demand. Second, the possibility of obtaining TLTRO funding at negative interest rates gives banks that actively seek to lend to the real economy a chance to preserve their positive ­interest margins.

The second half of 2019 saw a further ­deterioration in global economic conditions and hence in the euro area outlook for growth and HICP inflation. The September 2019 ECB staff macroeconomic projections showed a further downgrade of the outlook for GDP growth and of the HICP outlook, both in the short and ­medium term. On top of that, the outlook was subject to pronounced downward risks. The projections pointed to an HICP rate of 1.5% at the end of the forecast horizon (2021), i.e. to a rate well below the Eurosystem’s price stability target. Furthermore, measures of longer-term inflation expectations had once more hit ­historical lows following a sustained downward trend. This gave cause for concern at the ECB’s Governing Council about a potential dean­choring of long-term inflation expectations and a subsequent rise of real interest rates.

The Eurosystem provides further ­monetary policy accommodation

Policy implementation is up to the national central banks of the euro area in many areas. Thus, Austria’s commercial banks turn to the OeNB when they wish to participate in the ­TLTROs. Likewise, the majority of Austrian sovereign bonds bought under the PSPP are bought by the OeNB, and the same holds for purchases of Austrian covered bonds under the CBPP3. As at December 31, 2019, the OeNB carried Austrian sovereign bonds with a book value of about EUR 50.7 billion and Austrian covered bonds worth some EUR 7.5 billion on its balance sheet.

The two-tier system for the remuneration of excess reserves has greatly reduced the interest burden for Austrian banks. In the seventh ­reserve maintenance period in 2019 (lasting from October 30 to December 17), the amounts of interest payable by Austrian banks dropped by close to 40% to EUR 10.9 million even though banks were holding visibly higher volumes and the maintenance period was of above-average length.

The December 2019 Eurosystem staff ­macroeconomic projections for the euro area already reflected the monetary policy easing provided in 2019. According to these projections, euro area GDP growth stands to remain subdued in 2020, before rebounding to 1.4% in 2021 and 2022. For annual euro area HICP ­inflation, the projections foresee a rate of somewhat more than 1% for late 2019 and early 2020 (chart 4) and a rate of 1.6% for 2022. While even 1.6% is not in line with the price stability target, this increase reflects movement in the right direction.

Many of the measures that the Eurosystem has adopted since 2008 qualify as nonstandard and have not been studied in depth, giving
rise to concerns about potential side effects. Such unintended consequences may arise both from negative policy rates and asset purchases. Being well aware of this fact, the Governing Council of the ECB closely monitors any ­unintended side effects that may arise from its decision-­making. It is understood that weighing the ­benefits against the costs is an ongoing need.

In late 2019, Christine Lagarde, the new President of the ECB, put a review of the ­Eurosystem’s monetary policy strategy on the agenda for 2020 – the first such review in
17 years. The strategy review will address a wide range of issues at length, focusing on an evaluation of the price stability goal given the changes we have witnessed in the past 17 years. Since 2003, the euro area and the world ­economy have been undergoing profound ­structural changes, which have an impact on monetary policy and its design. Many other ­issues apart, the strategy review will also deal with the effectiveness of the monetary policy toolkit as developed over the past decade, ­including the aforementioned issue of potential side effects of monetary policymaking.

During the review, the Eurosystem will ­engage with members of the European Parliament and the academic and scientific communities but also reach out to euro area citizens at large. The review is expected to be concluded by the end of 2020.

President Lagarde has voiced her intention to hear all members of the Governing Council of the ECB for informed monetary policy ­decisions and to seek to implement unanimously agreed tools as far as possible. This
is also the spirit in which the review of the monetary policy strategy will be conducted.

Hello €STR, good-bye EONIA!

On October 2, 2019, the ECB began publishing a new benchmark interest rate for the euro area – the euro short-term rate (€STR). The €STR reflects the average cost of unsecured overnight borrowing faced by euro area banks, as reported by about 50 reporting banks per day. So far, the €STR has been tracking the Eurosystem’s deposit facility rate closely (see chart 5). At the end of 2019, the €STR stood at about –0.55%, not much below the deposit facility rate (–0.5%).

In the past, the euro overnight index average (EONIA) used to be the only prominent reference rate for the unsecured euro overnight market. However, the EONIA failed to meet certain minimum standards for determining interest rate benchmarks, for safeguarding the verifiability of the input data and for ensuring the transparency of the methodology. These minimum standards, which have since been included in the EU benchmarks regulation, were first defined by international bodies during and shortly after the financial crisis in the late 2010s in ­response to irregularities observed.

In February 2018, the European Money Market Institute (EMMI), which administrates the EONIA, ­announced that it did not intend to adjust the EONIA’s methodology to the new minimum standards. This ­created an urgent need for a new benchmark rate with which to replace the EONIA. The replacement rate of choice, recommended by the private sector working group on euro risk-free interest rates, was the euro ­short-term rate on which the ECB had been working on since 2016, now known as the €STR. The ECB started publishing a pre-€STR data series in March 2017, to enable financial markets to adjust their processes and procedures to ensure a smooth transition to the new interest rate benchmark.

Where do EONIA and €STR differ? What do they have in common?

What the EONIA and the €STR have in common is that they reflect the interest rate costs of unsecured overnight borrowing in the euro area money market. At the same time, they are different in that the EONIA, as it existed until end-September 2019, reflected ­lending rates whereas the €STR reflects borrowing rates. Moreover, the EONIA captured interbank lending rates whereas the €STR captures reporting banks’ borrowing from a broad range of financial institutions, including pension funds and insurance companies, thus providing a broader and hence more realistic picture. Finally, the €STR is based solely on individual euro-­denominated transactions with financial counter­parties, which euro area banks are required to report under the EU money market statistical reporting ­regulation. The EONIA, in contrast, used to rely on voluntary reports, and these reports were limited to the total volumes of reporting banks’ unsecured overnight transactions and the weighted averages of their daily transaction volumes.

The EONIA will be discontinued on January 3, 2022

Following the decision not to adjust the EONIA to the minimum standards for reference rates, it was clear that the EONIA was not here to stay beyond 2019 in its existing form. However, as the period from October 2 to December 31, 2019, appeared to be too short to transition all EONIA-based contracts to the €STR, the EMMI decided to change the EONIA methodology with the launch of the €STR on October 2, 2019. Since then, the EONIA has been defined as the €STR plus a fixed spread of 8.5 basis points, which means that the two ­reference rates are fully aligned. The transition period until January 3, 2022, will give all financial market ­participants sufficient time to replace any references in contracts to the EONIA with references to the €STR. To support this process, the working group on euro risk-free interest rates has issued a number of recommendations (see the ECB’s website ).

Austria moves to a slower growth path in 2019

25th anniversary of Austria’s EU accession

Austria’s current account surplus shrinks

This picture is also confirmed by the balance of payments. The balance of exports and imports of goods and services dropped to EUR 7.6 billion in the first half of 2019, corresponding to a decline of EUR 1.9 billion year on year. This decline was driven by goods and services alike, with the net balance of services excluding travel and tourism being negative for the first time since 1997. Travel and tourism, by contrast, continued to rise dynamically, with imports totaling EUR 10.7 billion even exceeding the 2018 result by EUR 300 million. Indeed, the result of the tourist summer season of 2019 stands out with 79 million overnight stays, which is even above the previous record high registered in 1991. In the first half of 2019, the balances of primary and secondary income were negative, broadly at previous year levels, thus ­reducing the current ­account surplus. The surplus dropped to EUR 4.4 billion, compared with EUR 6.2 billion in the first half of 2018. On this basis, Austria’s net international investment position totaled EUR 26.6 billion at the end of June 2019.

GDP growth in Austria aligned with euro area GDP growth

While in 2018 the Austrian economy had still grown at a visibly stronger rate than the euro area economy, growth was converging ­toward euro area growth rates in 2019 (see quarterly real GDP growth rates for Austria and the euro area since 2016 in chart 6). Ultimately, GDP growth was still higher in Austria (1.5%) than in the euro area (1.2%) in 2019 only because of Austria’s comparatively stronger growth momentum in the second half of 2018.

Employment growth eases while ­unemployment rate declines further in Austria

Decline in Austria’s HICP inflation driven by energy prices

While the contribution of industrial goods and services prices hovered between 1 and 1.4 percentage points from January to November 2019, it jumped to 1.7 percentage points in ­December. The contribution of energy and food prices was on a gradual decline from March (0.6 percentage points) until November, being in negative territory in October and ­November. The decline in energy price inflation was essentially driven by crude oil prices, which weakened from EUR 64 per Barrel (Brent) in April 2019 to EUR 54 in October 2019, ­before rising to EUR 59 in December. Ultimately, the inflation contribution from energy prices was slightly positive. Mirroring the inflation stability of domestic price components, core inflation remained broadly stable in 2019, ranging from 1.3% (February) to 1.7% (June and November) with the exception of December, when higher services prices drove up core inflation to 2.1%. In 2019 as a whole, it stood at 1.7 %, 0.1 percentage point lower than in 2018.

Continued price pressures from Austria’s real estate market

Fiscal developments remain promising in Austria

OeNB December 2019 outlook for Austria: dimmer growth prospects amid weak global trade

Stagnant German economy weighs on output growth in Austria

In Germany, economic growth slowed down significantly in 2018 and 2019. Since Germany is the number-one market for Austrian exporters, Austria was directly affected by weakening economic activity in Germany. According to OeNB estimates, a 1 percentage point fall in German GDP growth reduces GDP growth in Austria by about 0.2 percentage points.

Chart 8 shows how Austrian goods exports to Germany have increased or decreased since mid-2018. The decline in Austrian exports of machinery and vehicles as well as processed goods is the most visible sign of the feeble growth currently seen in Germany, which is, in turn, mostly the result of declining industrial output. Nominal goods exports to Germany have been below year-on-year measures since June (with an outlier in October on account of positive one-off effects for chemical products and machinery).

Germany’s industrial sector has been in a recession since end-2018, triggered by problems in the car industry that have since spread to many other areas of industrial production (chart 9). In Austria, by contrast, annual industrial production growth remained positive until April 2019, driven by the chemical and the car industry. While in May industrial production growth turned negative in Austria as well, the recession remained significantly weaker than in Germany until October. In November, this pattern reversed, with Austria experiencing a sharper contraction of industrial production than Germany, driven by negative contributions from all major goods categories. Austria’s industrial production has been dampened above all by the metals industry, whose contributions to GDP growth turned negative as early as in February 2019. A visible strengthening of leading indicators in January 2020 implies that industrial production growth in Austria started to rebound in early 2020.

Why the economic downturn has been deeper in Germany than in Austria

The delayed spillover of Germany’s economic weakness to Austria and the generally better performance of the Austrian economy may be pinpointed to a combination of factors: In the current business cycle, Germany reverted to a stronger growth path already in late 2013, i.e. earlier than Austria, with the upswing in Germany going hand in hand with an increasingly tight labor market. Moreover, the automotive industry accounts for a significantly larger share of value added in Germany (4.7%) than in Austria (1.2%; figures for 2017). Hence, problems facing the car sector following diesel emissions cheating had bigger repercussions for Germany than for Austria. Another reason is that the German economy is feeling the impact of weakening growth in China much more strongly since China is a more important market for German than for Austrian exporters. For this reason, the German export sector has been suffering noticeably from the consequences of the trade tensions between the U.S.A. and China. Finally, Germany also has closer trade relations with the United Kingdom than Austria. This means that the ­German economy has been affected more severely by Brexit-related uncertainties, while Austria has continued to benefit more strongly from the sustained robust growth in Central, Eastern and Southeastern Europe ­(CESEE).

External effects on the Austrian economy in 2019

Slowdown in economic growth spreads to CESEE

The key engine of growth in the CESEE ­region was private consumption, fueled by strong consumer sentiment and strong credit growth but above all by the continued improvement of labor market conditions. The unemployment ratio averaged 3.7% in CESEE in ­October 2019, touching the lowest level ever since the early days of transition. Strong employment growth went hand in hand with a further increase in labor force participation rates. By mid-2019, 9 out of the 11 CESEE economies had higher participation rates than the euro area.

Following years of unemployment decline and employment growth, the slack in the labor market has been largely ­absorbed, leading to ­increasing labor shortages and a strong acceleration of wage growth. In the medium run, ­excessive wage growth would pose risks to competitiveness and price stability. However, business sentiment surveys conducted by the European Commission show that the labor shortages declined somewhat in 2019. In this process, wage growth decelerated as well.

Business investment in CESEE was driven by funding received from the European Structural and Investment (ESI) Funds, which fueled construction activity. Private sector investment was boosted by good financing conditions and above-average capacity utilization. At the same time, industrial confidence weakened on account of the outlook uncertainty for major trading partners, and order book levels (especially for exports) deteriorated. This was also reflected in a decline of export growth.

Consumer price inflation increased somewhat in 2019 despite weaker economic activity. The upward trend was particularly pronounced for core inflation, i.e. the general price level as adjusted for energy and food prices, which tend to be more volatile and are too moving a target to be effectively controlled by monetary policy measures. The visible rise in core inflation appears to reflect full capacity utilization and the positive output gap.

Croatia continues to converge with the euro area

The euro area countries are SSM-participating countries as a rule, but other EU countries may choose to participate under close ­cooperation agreements. Croatia submitted a request for close cooperation with the SSM on May 27, 2019. Its request will be addressed in the same way as the request received in July 2018 from Bulgaria, which was the first country to seek ERM II membership after the financial crisis and which also made a number of commitments on which ERM II participation is conditional, including the committed intent to enter into close cooperation with the SSM. For Bulgaria, the ECB has already conducted a comprehensive assessment of the assets of ­selected credit institutions, which was published on July 26, 2019. The ECB now supports the Bulgarian central bank in implementing the SSM-related supervisory requirements. Regarding Croatia, the process has progressed to the selection of those banks that will be subjected to a comprehensive assessment. The ECB intends to conclude the comprehensive assessment for Croatia by mid-2020 (i.e. within one year following Croatia’s request for close cooperation).

Final Brexit deal negotiated by new EU leaders

Following elections in the U.K. in December 2019, the House of Commons adopted the EU withdrawal agreement bill on December 20, 2019. On this basis, the U.K. officially left the EU on January 31, 2020. This date marked the start of a transition period set to run until ­December 31, 2020, during which the U.K. will remain within the single market and continue to apply EU law while remaining represented in the EU institutions only by way of ­exception.

Austria reviewed by and contributing to international (financial) organizations

The OECD published its regular economic survey of Austria in November 2019, having consulted domestic economic policymaking ­institutions (including the OeNB). The report’s key recommendations include measures to cut government debt levels; make the existing macroprudential recommendations on mortgage lending compulsory; link retirement age to life expectancy; and make room for substantial labor tax cuts for lower income earners by raising consumption, CO2 and inheritance taxes.

The bilateral borrowing agreements that the IMF had concluded with 40 member countries, including Austria, in 2016 were extended by one year until the end of 2020. The extension took effect in November 2019, following approval by the Fund’s Executive Board and consents from all 40 creditors. Total commitments under this temporary borrowing framework amount to about SDR 318 billion (EUR 394 billion), with the temporary credit line offered by the OeNB totaling EUR 6.13 billion. Following the one-year extension of the bilateral borrowing agreements, the IMF’s quota resources and borrowed resources continue to run to SDR 977 billion (about EUR 1,200 billion).

Looking back on 30 years of transition in CESEE: remarkable economic achievements

The fall of the Iron Curtain in 1989 was one of the major turning points in European history, nourishing wishes of closer cooperation across Europe and creating hopes of future prosperity. The map of Europe has changed a lot since that time. Eight CESEE economies joined the EU in 2004.

Meanwhile, another three countries (Bulgaria, ­Romania and Croatia) have joined the EU, and five CESEE EU countries have adopted the euro as their official currency, and several other countries – above all Western Balkan countries – have been converging more closely with the EU. Economic transformation, European integration and EU accession have been key drivers of a process of social, political and economic modernization and renewal in the CESEE region.

However, the transformation to market economies initially required the fundamental restructuring of economic processes in CESEE. The ensuing liberalization of prices and exchange rates as well as reallocation waves shifting resources from government-­controlled economic entities to independent economic agents led to a deep economic recession. The CESEE economies thus suffered substantial setbacks in economic output, which were most dramatic in the mid-1990s. Since then, an economic catching-up ­process has been unfolding. In today’s CESEE EU Member States, average per capita incomes (measured at purchasing power ­parities) surged from 35% to 55% of the euro area level between 1992 and 2008.

Rapid income gains since the mid-1990s amid increasing Europeanization

Across the CESEE area, transition progress was highly heterogeneous. Slovenia, for instance, overtook Portugal in 2005, having started from comparatively high per capita incomes (close to 55% of the euro area average; chart 11). Czechia managed to do the same in 2006. Bulgaria and Romania, by contrast, did not revert to ­sustainable growth paths until the 1990s, which dampened income convergence for many years.

Economic developments in this period were heavily characterized by rising trade openness and by a structural reorientation of trade toward Western Europe. The growing openness went hand in hand with a massive inflow of foreign direct investment (FDI), which helped strengthen production capacities and modernize the economies. FDI also boosted the transfer of technology and management know-how, thus strongly fueling ­productivity gains.

Austrian agents accompanied and supported the convergence process from the outset

Given the geographic proximity and close historical and cultural ties with the CESEE region, Austrian agents
were instrumental in fostering the transition process from the start. The direct investment stocks of Austrian firms – whose expansion to CESEE was in many cases financed by Austrian banks – in today’s CESEE EU Member States thus surged from close to EUR 400 million in 1990 to more than EUR 42 billion in 2008. Austrian investors even became the largest nonresident investors in several CESEE countries (including Bulgaria, Croatia, Romania, and Slovenia). Efforts to leverage the high profit potential created by the transition process also led to an internationalization of the Austrian banking industry. Austrian banks were among the first foreign banks to move into the CESEE region, expanding above all to Poland, Slovakia, Czechia and Hungary in the early 1990s. On a ­consolidated basis, the exposure of majority Austrian-owned banks to today’s CESEE EU Member States thus jumped from EUR 3 billion in 1993 to EUR 170 billion at end-2008. With such commitments, Austrian banks were among the biggest players in CESEE by far before the outbreak of the global financial crisis in 2008, along with German, French and Italian banks; and they continue to be among the biggest players today.

OeNB experts monitored these developments closely from the early days, building a knowledge base on CESEE-related issues, which today also serves the analytical needs of the European System of Central Banks. Over time, this focus led to the production of many research papers and to the launch of several OeNB publication series (including the quarterly Focus on European Economic Integration ) and events as well as OeNB scholarships and awards . On top of that, the OeNB continues to invest in technical cooperation with CESEE central banks, and to support training programs for public sector officials from the ­CESEE region at the Joint Vienna Institute . With ­regard to financial stability and banking supervision issues, the OeNB continues to closely monitor the activities of Austrian banks in CESEE and to maintain close links with the local supervisory bodies.

Yet, the CESEE economies’ higher degree of ­internationalization and their rapid economic and ­financial ­integration at the European level came at the cost of rising macroeconomic imbalances. Thus, all CESEE countries came to run high current account deficits before the outbreak of the global financial crisis in 2008. As catching-­up economies often rely on international funds given their heightened capital needs, such deficits are, to some extent, a natural side effect of the economic catching-up process. However, excessively high current account deficits create increased vulnerability to inter­national shocks and may drive the buildup of unsustainable external debt.

Too sharp an increase in (consumer and other) lending and/or the buildup of high foreign currency loan portfolios drove up local banking sector risks in a number of CESEE countries. The OeNB and the Austrian ­Financial Market Authority (FMA) have therefore adopted a number of measures in response to these developments to strengthen the resilience of Austria’s banks and financial system. ¹⁴

Sustained crisis-related deceleration of economic catching-up processes

Following the outbreak of the global financial crisis of 2008, the CESEE economies slipped into a severe recession, and the catching-up process stalled. The severeness of the economic downturn differed from country to country, depending on the extent of previously accumulated economic imbalances. In general, though, the CESEE economies were hit worse than the euro area economies or other catching-up economies. The setback was most substantial in the Baltic countries, where an overheating of the economy had caused output to shrink even before 2008. Poland, meanwhile, was one of the few European countries that coped with the global economic and ­financial crisis without experiencing a recession.

By 2011, more or less, most other CESEE economies had emerged from the crisis as well and resumed the process of catching up with the higher income levels in the euro area – having benefited, among other things, from the high degree of economic policy coordination across Europe, above all in the context of the Vienna ­Initiative. The Vienna Initiative was launched at the height of the crisis, in early 2009, to ensure that foreign banking groups active in CESEE would not exacerbate the crisis by suddenly withdrawing funding and capital from their subsidiaries. The OeNB was instrumental in getting the Vienna Initiative started.

Even once the crisis was overcome, the CESEE economies continued to exhibit significant differences in ­economic progress. While the Baltic countries, for instance, were fairly quick to return to solid growth rates following severe consolidation measures (partially with the support of IMF funds), Slovenia and Croatia did not overcome their economic weakness until the mid-2010s. In recent years, however, all CESEE economies have been recording robust income gains again, bringing average per capita income levels in CESEE to 70% of the euro area level in 2019.

In general, the catching-up process has slowed down, and potential output growth has weakened since the crisis. Reversing this trend is a fundamental challenge for the CESEE economies and will require efforts to ­increase investment and innovative capacity. Policy measures will be most effective when boosting investment in infrastructure and human capital, advancing institutional reform and addressing good governance issues. This appears to be even more urgent as potential output growth is likely to be affected by demographic change even in the medium term. The shrinking supply of labor calls for adequate measures to keep people in active employment longer than in the past and to make it more attractive for people to seek employment in the CESEE region. This might contain future brain drain and draw former emigrants back home.

Diversified reserve management in times of ­weakening economic growth and ample monetary accommodation

The OeNB’s investment strategy ­continues to work

Reserve asset allocation is characterized by a broad degree of diversification (chart 12). Apart from gold reserves, the OeNB’s investment portfolio is well diversified across currencies, regions and financial instruments (above all debt securities, but equity securities as well). The OeNB’s funds are typically invested in convertible currencies of countries with excellent credit ratings and in bonds issued by governments, agencies and supranational institutions, as well as in covered bonds. Other assets such as corporate bonds and stocks have been included with a view to improving the risk-­return ratio. Over the years, the OeNB’s investment strategy has been a key pillar of stability supporting the fulfillment of the OeNB’s tasks within the ESCB.

Global financial markets dominated by monetary policy turnaround

U.S. government bond performance increased by as much as 6.9% in 2019 (chart 13), driven by the Fed’s monetary policy turnaround as well as by the generally higher level of U.S. bond yields. In Germany, meanwhile, yields on ten-year government bonds dropped to unprecedented lows of below –0.7%, allowing holders of government bonds to nonetheless benefit from a positive performance of 3.0%. Holders of Austrian government bonds enjoyed a performance of 5.4%. Reflecting the process of political stabilization in Italy, the performance of Italian government bonds outpaced even U.S. bonds, rallying by 10.6% – on a par with the performance of emerging market bonds.

Stock market performance was robust in 2019 despite the economic slowdown. The U.S. index S&P 500 climbed by around 29% in 2019, reaching several record highs during the year, following the Fed’s monetary policy turnaround and anticipating an easing of the trade tensions between the United States and China. European stock markets also recorded strong price gains. The German leading stock market index DAX, for instance, surged by about 25% during the year. Commodity markets likewise benefited from the additional central bank liquidity that made its way into the market. The gold price jumped 19% year on year, an annual increase last seen in 2010.

In the currency markets, the exchange rate of the pound sterling moved up 6.1% against the euro, benefiting from a de-escalation in the struggle to arrive at an orderly Brexit. The ­Japanese yen and the U.S. dollar, both safe-­haven currencies, appreciated by about 3% and 2%, respectively, against the euro. The strong performance of these two currencies also ­reflects the uncertainty surrounding the ongoing trade tensions. In this climate, some emerging market currencies (including the Turkish lira, the Hungarian forint and the Brazilian real) came under pressure to devalue in 2019, as reflected by a 1.4% drop of J.P. Morgan’s Emerging ­Market Currency index against the U.S. dollar.

OeNB reserve management guided by risk mitigation and diversification ­strategies

Despite the challenging times with low interest rates in the euro area, the OeNB managed to ensure cost recovery and even profit generation in 2019, beyond fulfilling its monetary policy tasks. A balanced mix of asset class and currency allocation was instrumental in achieving excellent results. The funds invested in debt securities, which account for more than half of the OeNB’s own funds portfolio and are denominated in both euro and foreign currencies, generated a performance of more than 1% in 2019. The less liquid assets, which make up around 15% of the OeNB’s own funds portfolio and are partly externally managed, even achieved a per­formance of some 10%. These results were topped only by the gold holdings, which gained 19% in value (chart 14). In terms of value, gold accounts for about one-quarter of the OeNB’s reserve assets. Investment demand for gold was high in these past few years, leading to substantial price increases in 2019 in a late-cycle environment.

Beyond profit: in pursuit of social ­responsibility in investing

With widespread adoption of ESG criteria, the options for investing sustainably in international financial markets have broadened in ­recent years. Thus, as a first step, the OeNB has been awarding external investment mandates with ESG filters and/or ESG benchmarks in ­selected asset classes since 2018 to ensure compliance with sustainable environmental standards, a responsible consideration of social aspects and good corporate governance in investment decisions. The OeNB’s internal portfolio managers have also been giving increasing preference to financial instruments that meet these quality standards. The application of the ESG criteria will be developed further in the light of ­experience and in accordance with accepted procedures.

The OeNB is walking the talk on green finance

Apart from numerous environmental risks, the climate change we are witnessing also creates social, economic and financial risks for many different industries, which are correlated in time and across countries. For the Euro­system, Christine Lagarde made climate change and green finance an action priority soon after becoming the new ECB president. Since it is the primary task of central banks to safeguard price stability and financial stability, as has been laid down for the euro area central banks in the ESCB Statute, central banks cannot afford not to adjust their monetary and financial models to integrate climate change risks.

Economic risks of climate change

The physical risks climate change can cause also constitute economic risks. As global temperatures rise and as extreme weather events (e.g. heavy rain, floods, droughts, forest fires) become more and more common, ­production capacity in the affected regions goes down while insurance costs go up. As a result, the value of ­assets serving as collateral may decline considerably, which, in turn, increases the default risk of credit institutions’ loan portfolios. Financial losses may also emerge from so-called transition risks – risks arising from the transition to a low-carbon, resource-efficient economy – as climate-damaging “brown assets” may decline in value and turn into stranded assets.

The transition to a sustainable economy may be the result of statutory or regulatory changes, but it may also be driven by technological progress (e.g. cheaper climate-neutral energy forms) or shifts in demand triggered by greater awareness of the impact of climate change.

While climate change is a relatively new source of risk, its repercussions can be measured with the established risk management categories financial intermediaries already use, including credit, market and liquidity risks. Credit risks rise as natural disasters diminish the capital value of credit-financed assets. A higher incidence of bad weather conditions increases price volatility and hence market risks. Liquidity risks likewise mount as natural disasters precipitate cash withdrawals and fuel demand for emergency loans. Financial intermediaries are required to have adequate risk management frameworks in place for any type of financial risk – including financial risks arising from climate change – under the prevailing rules (which, in the case of Austria, include the Banking Act, the Insurance Companies ­Supervision Act, and the Investment Fund Act). However, the majority of Austrian banks, insurance companies and fund management companies apparently have yet to integrate climate change risks into their risk management systems, as implied by a recent survey ­addressing this issue. ¹⁵

Network for Greening the Financial System

A Central Banks and Supervisors Network for Greening the Financial System ( NGFS ) was launched in Paris in 2017 in view of the paramount importance of climate change. The NGFS has since grown from 8 founding members to some 50 institutional members, including the OeNB and the ECB. Forming a coalition of the willing, NGFS members seek to develop enhanced climate risk management practices in the financial sector and mobilize mainstream finance to support the transition to a sustainable economy. Three work streams have been defined, dealing with supervision, macrofinancial issues and mainstreaming green finance. The supervision work stream serves to share adequate supervisory practices for monitoring risks arising from climate change and addresses the disclosure of such risks as well as the classification of assets into “green” and “brown” assets. Some of these findings have been summarized in a guide for supervisors for assessing climate and environmental risks. The macrofinancial work stream deals with the potential economic impact of climate change and transition (including tail risks) as well as the channels through which such effects may affect the financial system. The third work stream looks into the scope for “greening” central banking and supervisory activities and monitors the market dynamics of green finance. OeNB staff members contribute to all three work streams.

The response of EU regulators to climate change

Similar to the NGFS’s call for action at a global level, the European Commission, in March 2018, published an action plan on financing sustainable growth, to be followed up by EU regulators. Most importantly, the Commission put forward a legislative proposal for a unified EU classification system for sustainable activities. Said taxonomy is to be based on the following criteria:

• making a substantial contribution to at least one of the following six environmental objectives: (1) climate change mitigation, (2) climate change adaptation, (3) sustainable use and protection of water and marine resources, (4) transition to a circular economy, (5) pollution prevention and control, and (6) protection and restoration of biodiversity and ecosystems;
• not significantly harming any of the environmental objectives;
• complying with minimum standards with regard to social and governance aspects;
• complying with specific technical screening criteria.

The relevant negotiations at the European level were completed in late December 2019. By the end of 2021 at the latest, the Euro­pean Commission will provide investors with clarity on which activities are green by defining a full-fledged taxonomy through delegated or implementing acts, to become effective by the end of 2022.

Agreement has since been achieved at the European level on two other measures of the European Commission’s action plan, leading to the publication of the relevant legal acts in the Official Journal of the EU dated December 9, 2019: (1) a regulation on sustainability-related disclosures in the financial services sector for due consideration of environmental, social and governance (ESG) risks in investment decision-making; and (2) a regulation amending the regulation on low carbon benchmarks and positive carbon impact benchmarks, to help investors compare the carbon footprint of investments.

Further action in this area is to be expected from the new European Commission in the years ahead. For instance, when communicating “The European Green Deal” on December 12, 2019, the European Commission announced that it would present a renewed sustainable finance strategy in the third quarter of 2020.

Climate risks on the radar of supervisors

The issue of sustainable finance has also gained relevance for the ECB, the European Systemic Risk Board (ESRB) and the European Banking Authority (EBA).

Apart from playing an active role in the NGFS, the ECB has, for instance, been working on establishing a framework for monitoring climate-related risks and for identifying data gaps and transmission channels for ­climate risks.

In April 2019, the ESRB’s Advisory Technical Committee and the ECB’s Financial Stability Committee launched a joint project team, which will develop an analytical framework for identifying and measuring climate change-induced systemic risks and determine the relevant channels of transmission to the financial economy. The goal is to develop stress tests or scenario analyses that factor in climate change-related risks to financial stability. This work is meant to lay the groundwork for future climate change scenarios in EU-wide banking stress tests. The OeNB also contributes to the work of this project team.

On December 6, 2019, the EBA published its action plan on sustainable finance, with the following timeline: Until June 2021, the EBA will assess ways to include ESG risks in the risk management systems used by the banking sector and in the existing supervisory review and evaluation process (SREP). Until June 2025, it will further­more assess whether a dedicated prudential treatment of exposures related to assets or activities associated substantially with environmental and/or social factors would be justified.

Green finance activities in Austria

In Austria, a Green Finance Focal Group was launched by the government in February 2019 with the specific mandate of developing a green finance agenda and pushing forward with its implementation. The OeNB supported the Focal Group by helping develop an initiative to improve climate risk management in the financial sector. Thanks to the buy-in of strategic partners, this initiative inspired a number of events aimed at raising the awareness of financial intermediaries for the financial risks of climate change and about adequate methods to manage climate risks. With these activities, the OeNB was also acting on a recommendation of the NGFS, which had called upon its members in April 2019, among other things, to share information on adequate risk measurement methods and raise awareness for climate risks in the financial sector.

One of these events, organized in cooperation with Austria’s Federal Economic Chamber, took place on ­December 11, 2019, at the OeNB premises. Speaking to a large domestic audience, experts from the ECB, the European Investment Bank as well as Austrian financial institutions, research institutions and public authorities discussed the potential financial risks of climate change and adequate methods and indicators for integrating relevant metrics in financial intermediaries’ risk management procedures. ¹⁶ Furthermore, OeNB experts presented or discussed green finance issues in the context of events organized by the Environment Agency Austria and the Vienna University of Economics and Business, and at the UN climate conference in Madrid.

To ensure an adequate understanding of the intricacies of green finance and to facilitate information sharing, the OeNB established an internal green finance platform already in 2018 to link up experts from its different business areas (including banking supervision, statistics, treasury, economics and payments). Moreover, OeNB staff members have been adding to the debate from a central bank perspective with relevant contributions to internal and external publications.

2019 marked the completion of a research project under which experts from the University of Zurich and the Vienna University of Economics and Business analyzed the transition risks of sovereign bonds in the OeNB’s investment portfolio. ¹⁷ The purpose of the project was to assess different climate transition risk scenarios and the response of energy markets as a trigger for changes to the value added contributions from the respective industrial sectors. Negative shocks to gross value added cause national tax revenues to go down, thus raising risk premiums on sovereign bonds, which will, in turn, reduce the price of these bonds. Countries whose production patterns are in alignment with the goals of the Paris climate agreement are not vulnerable to negative effects; however, the greater a country’s misalignment with these goals is, the higher is its implicit risk premium.

Austrian banks face rising risks amid favorable ­economic conditions

Historically low risk costs as a key profit driver for Austrian banks

In the first three quarters of 2019, Austrian banks achieved consolidated (after tax) profits of EUR 5.3 billion, which is 3.4% less than the corresponding result for 2018. The return on average assets came to 0.8%, as in 2017 and 2018. Net interest income benefited from credit growth but continued to be affected by maturing higher-yielding loans and the zero ­interest rate threshold for deposits. Credit quality, meanwhile, continued to improve. ­After the first three quarters of 2019, the ratio of nonperforming loans stood at 2.2% on a consolidated basis (or at 1.8% for domestic loans and at 2.5% for loans extended by CESEE-­based subsidiaries of Austrian banks).

Structural challenges require Austrian banks to keep adjusting their business models

Austrian banks’ comparatively weak operational efficiency continues to reflect complex, cost-intensive structures. The protracted period of low interest rates that banks have been facing adds to already low interest margins. Hence, it is vital for banks to adjust their business models and to improve their cost efficiency, and to use their room for maneuver to cope with new challenges, such as digitalization.

Continued growth of lending by ­Austrian banks in Austria and CESEE

In CESEE, credit growth quickened in the past two-and-a-half years, above all with regard to residential housing loans. ¹⁹ With a share of well above one-third of the total loan portfolio, real estate loans have been becoming more ­relevant also for Austrian banks’ lending in ­CESEE. Loan growth was particularly strong in Czechia and Slovakia, which are among the most important countries for Austrian banks doing business abroad. These two countries ­accounted for two-thirds of all real estate loans extended by Austrian banks in CESEE.

In some CESEE countries, the rise in lending to households has led to macroprudential action by the national central banks or supervisory ­authorities. These measures include above all borrower-based measures (such as debt caps), measures to reduce foreign currency loans and countercyclical capital buffers.

Austrian banks have made good ­progress in building up capital buffers

To bear the risks arising from strong credit growth (especially in CESEE), the challenge for banks is to enhance cost efficiency and sustainably ensure adequate capitalization, ­especially by appropriately balancing dividend payouts and internal capital generation. Banks will also have to keep up their efforts to remain resilient in view of the weakening outlook for growth.

Macroprudential measures strengthen Austria’s ­financial stability

Ensuring sustainable lending standards for real estate financing is crucial

Based on OeNB analyses, Austria’s Financial Market Stability Board (FMSB) conducted a preliminary evaluation of how well the communication of supervisory expectations on sustainable real estate financing ²⁰ has been received by the market. This evaluation yielded mixed evidence on how effectively these expectations have been translated into banks’ lending standards. Starting from high levels, loan-to-value ratios and maturities were found to have improved slightly for banks’ new lending business. However, this was not the case for the debt service ratio; and the analysis of systemic risks even yielded signs of rising risk. Consistent compliance with supervisory expectations will be crucial for safeguarding financial stability in Austria. From an international perspective, the IMF, the European Systemic Risk Board (ESRB) and the ECB see the risks arising from real estate financing as a key challenge for financial stability in Austria. The OECD has even called for binding measures in this respect.

The OeNB will therefore continue to monitor developments in real estate markets and banks’ compliance with sustainable lending standards communicated by the FMSB. In 2019, the OeNB and the FMA completed work on developing a reporting framework for collecting data on residential housing loans. The first such data reports have to be submitted for the reporting date of June 30, 2020.

Further measures developed by the OeNB for mitigating systemic risk

Every year, the OeNB also evaluates the relevance of other systemically important banks (O-SIIs) for Austria’s financial system and ­assesses whether the malfunctioning or failure of such banks could trigger systemic risks that would require corresponding action. The FMSB renewed its recommendation in this ­respect in September 2019, leaving both the banks identified for activation of O-SII buffers and the size of the buffers unchanged. Where both the SyRB and the O-SII buffer might be applicable, the higher of the two rates applies at present. This will change with the new capital buffer regime under the Capital Requirements Directive (CRD) V, which is to be implemented by end-2020: Under the CRD V, the two buffers will be additive.

Also, following a regular review, it was ­decided on the basis of OeNB analyses that the countercyclical capital buffer (CCyB) was to be maintained at 0% of risk-weighted assets in the absence of excessive credit growth ( FMSB meeting of December 13, 2019 ).

Supervisory measures adopted by the OeNB and the FMA have contributed to the fact that foreign currency loans extended in Austria no longer pose a systemic risk. In the first three quarters of 2019, the volume of foreign currency loans outstanding to households declined by 12.1% on the year to EUR 14.1 billion. This corresponds to a foreign currency loan share of 8.4%. An information folder provided by the OeNB, the FMA and the Austrian Federal Economic Chamber so as to keep raising borrowers’ awareness of the risks of borrowing in foreign currency was reviewed and recirculated in early 2019.

By comparison, the volume of foreign currency loans extended by Austrian banks’ CESEE subsidiaries dropped by slightly more than ­two-thirds from end-2010 to end-June 2019, to EUR 30.1 billion. In mid-2019, foreign currency loans thus accounted for 24% of total lending, with 82% of all foreign currency loans being denominated in euro.

The OeNB’s and FMA’s supervisory guidance to large internationally active Austrian banks to strengthen the sustainability of their business models ( Sustainability Package ) aims at strengthening foreign subsidiaries’ stable local funding base and aligning it with credit growth, thereby reinforcing financial stability both in the host countries and in Austria. This guidance was first provided in 2012 and continues to apply, subject to some adjustments. The ongoing supervision of Austrian banks confirms that their CESEE subsidiaries have a balanced funding base; after the first three quarters of 2019, the loan-to-deposit ratio of CESEE subsidiaries stood at 80%, compared with 106% at the end of 2011.

European banking supervision has been very effective

Positive track record includes harmonized supervisory processes and efficiency gains

In Austria, the OeNB and the FMA play a major role in supervising significant institutions and are directly responsible for supervising less significant institutions.

Proactive supervision has helped fostering a sound and resilient banking system in Austria in recent years, and much progress has been made. On average, Austrian banks are now more profitable and better capitalized, and compared with SSM averages, they continue to have better growth opportunities due to their business activities in the CESEE region.

Apart from putting pressure on banks to ­reduce nonperforming loans, the SSM has also paid a lot of attention to risk modeling issues in recent years. Together with national supervisors, the ECB launched an SSM-wide targeted review of internal models (TRIM) in 2016 in order to harmonize supervisory practices. The evidence compiled in more than 150 on-site ­investigations shows that higher quality standards and the greater alignment of models have been instrumental in strengthening trust in the use of internal risk models and in reducing the variability of own funds requirements.

Reviewing banks’ lending standards is also an integral part of the microprudential pillar of European banking super­vision. A data collection exercise the SSM conducted in 2019 served to identify and assess both the risks arising from banks’ lending practices and any resulting vulnerabilities in individual business areas. Analyses following up on these data provide guidance for bank-specific measures. Moreover, on-site ­inspections have been undertaken to review the quality of specific asset class exposures and related credit lending standards in areas such as commercial and residential real estate.

Another item on the SSM agenda is the ­impact of Brexit on the European banking market. Supervisors have been monitoring SSM-­supervised banks’ preparations for Brexit, and they have been bracing for the extra workload for the SSM, as banks relocating from the U.K. to the euro area will become subject to the SSM. The related impact on Austria’s banking market is limited.

Reducing nonperforming loans remains a priority

To encourage banks to reduce nonperforming loans, banking supervisors have been providing clear targets and rules of engagement in recent years. These measures include the strong communication of supervisory expectations, as expressed by the SSM and EBA, regarding the period over which banks are expected to reduce their unsecured NPL portfolios. In addition, EU legislators have laid down new rules that are meant to prevent a renewed buildup of nonperforming loans in the future, or meant to ­ensure that any loans that turn nonperforming are adequately provisioned, with risk provisions under Pillar 1 following a predefined calendar.

The SSM will will continue to closely monitor the proactive reduction of NPL portfolios and actively support banks’ NPL reduction strategies. Likewise, efforts will continue to go toward monitoring sustainable credit standards, to ensure that banks will remain resilient to crisis also in the future and in the event of economic downturns.

EU banking reform package adopted to enhance the regulatory framework

The new framework for risk reduction ­requires banks to hold higher amounts of capital, thus raising their loss-absorbing capacity. Moreover, the new framework defines a new category of “eligible liabilities” (i.e. eligible for bail-in). The new quantitative and qualitative requirements for loss-absorbing capital instruments and eligible liabilities were designed to facilitate an orderly bail-in process in the event of a crisis. Moreover, the banking package provides for binding leverage ratios and binding net stable funding ratios.

What is particularly relevant from an Austrian perspective and in line with the proportionality principle promoted by the OeNB and the FMA, is the proposal to lower the administrative burden for “noncomplex, small banks,” especially with regard to reporting obligations and disclosure rules.

European deposit insurance as the third pillar of banking union

Building the third pillar of the European banking union, a European deposit insurance scheme, is now on the agenda of the new European Commission. However, the negotiations are expected to be challenging as opinions about the technicalities of EDIS ²³ continue to diverge strongly among member countries and the issue of EDIS is tied up with the issue of capital requirements for sovereign bonds. The OeNB’s position is clear: the mutualization of risk is not an option unless adequate rules have been agreed for risk reduction.

Impact assessment study and EU draft legislation to implement Basel III

The EBA released reports on the impact of the Basel III package, including specific policy recommendations for implementation, in August and December 2019. It supports a full, timely and consistent implementation of the reforms. In the EU, proportionality will be an issue given the diversity of the EU banking sector, and the OeNB stands ready to support further progress in this direction. An EBA impact assessment made for a sample of 189 EU-based banks shows that the proposed reforms would raise capital requirements by 8% on average for the 15 Austrian banks included in the sample. Compared with the EU average (close to +24%), the impact would therefore be significantly lower for the Austrian banks since they have higher density ratios (risk-weighted assets as a share of total assets). On balance, in its macroeconomic impact analysis, the EBA concludes that the long-term benefits of the Basel III reform package outweigh the short-term transitory costs.

OeNB and FMA seize the opportunity to enhance cooperation

As a case in point, the FMA and the OeNB defined and communicated common focus areas in banking supervision for 2020, namely digitalization, business model development, governance and crisis resilience (including sustainable lending) of credit institutions. Beyond that, the FMA and the OeNB will continue to support the development and implementation of new regulatory measures, particularly with regard to the completion of the reform agenda of the ­Basel Committee on Banking Supervision and with regard to the ongoing debate on green finance.

OeNB statistics trace economic and financial ­activities in Austria

AnaCredit provides detailed ­information on credit instruments

In Austria, AnaCredit reporting was aligned with reporting to the Central Credit Register (formerly Major Loans Register), which has been in place for 32 years, under the 2018 ­Regulation on the Collection of Granular Credit Data. The latter differs from the AnaCredit Regulation by having broadened the ­reporting requirements to include:

• financial institutions as defined by the CRR other than credit institutions (e.g. leasing companies),
• loans to natural persons (EUR 350,000 and above),
• additional instruments that do not constitute loans in the strict sense but are exposed to credit risk,
• input data for determining the regulatory capital required for the reported instruments in line with the definitions of the common reporting (COREP) framework, and
• information on reporting institutions’ credit assessment systems.

Innovations in supervisory reporting

In the field of payment statistics, the scope of reporting is to be expanded. To this end, first EU draft regulations were drawn up in 2019, the costs and benefits of newly envisaged content were assessed and further administrative preparations were made. Amongst other things, these initiatives are intended to support, as of 2021, the statistical recording of inno­vative payment methods and the detection of fraudulent transactions pursuant to EBA ­requirements.

The Single Resolution Mechanism (SRM) constitutes the second pillar of European ­banking union and requires the development
of resolution plans by the competent authorities. In 2019, the OeNB rolled out the large-scale collection, processing and quality assurance of resolution planning data and started reporting the relevant data to the respective ­national and international authorities.

Revised OeNB online statistics ensure better services

New technologies and new content in macroeconomic statistics

Looking ahead, there is the challenge of keeping enhancing both external statistics and the financial accounts, as more information will be required in a number of key areas
(i.a. globalization, digitalization and shadow banking) defined by the ESCB in its medium-­term strategies. With regard to the external sector, new requirements have already been specified – for example, a more detailed breakdown of the financial sector, reports on additional financing instruments as well as more detailed country and currency information. With regard to the financial accounts, ongoing discussions point to a significant refinement of current statistical requirements, e.g. regarding the activities of other financial corporations (other than banks) or enterprises’ cross-border financial interdependencies.

The OeNB cooperates successfully with other central banks in credit quality ­assessment

Another key issue in 2019 was the use of AnaCredit data in ICAS. By heading the ICAS Expert Group, the OeNB was able to help move the related initiatives forward. Finally, a pilot study on how to improve forecasting ­performance by using machine learning (in particular artificial neural networks) was ­carried out successfully in 2019.

Secure and efficient payment services in Austria

Completion of the Europa series

In line with the crucial task of the Euro­system, and thus also of the OeNB, of advancing banknote technology further, the new bank­notes come with enhanced features. The colors of the new euro banknotes were slightly adjusted and their design was modernized to make the old and new series easily distinguishable.

Like the euro banknotes of the first series, all banknotes of the Europa series can be checked for authenticity by using the FEEL, LOOK and TILT method, which does not ­require any technical equipment. The security features that distinguish the new euro bank­notes from counterfeits comprise raised relief details, a portrait window and a portrait watermark, the emerald number and a silvery stripe.

Trends in cash demand

Given its efficiency in domestic cash handling and its vast experience in cash logistics planning and cross-border cash transports, the OeNB has established itself as a cash supply hub in Central Europe. This is also why the OeNB was chosen as a location for holding Euro­system Strategic Stock. Since a number of Austrian banks are active in CESEE countries where the euro is widely used as a means of payment and store of value, considerable volumes of euro cash flow into the CESEE region via Austria. In 2019, around one-fourth of the OeNB’s total lodgments and withdrawals were managed via international banknote wholesalers. These inter­national linkages enhance the OeNB’s strategic importance within the Eurosystem.

Since the introduction of euro cash in 2002, both the volumes and value of euro cash in circulation have increased continuously; in the past few years, this rise even outpaced economic growth. Among other factors, this is attributable to the increasing importance of the euro as a store of value. At the end of 2019, 24.06 billion euro banknotes worth EUR 1,292.74 billion were in circulation. This corresponds to a 6.4% rise in numbers and a 5.0% rise in value year on year. Both the number and value of euro coins in ­circulation went up as well, by 3.3% to 135.08 billion euro coins worth around EUR 30 billion (+3.4%). Overall, the value of euro cash in circulation at end-2019 thus came to EUR 1,322.74 billion, up 5.0% against the previous year.

The rise in EUR 200 and EUR 100 bank­notes in circulation (see chart 18) is attributable, on the one hand, to the fact that the EUR 500 banknote is no longer issued as well as to the changeover to the Europa series and, on the other hand, to the prevailing low level of interest rates, which caused cash hoarding effects in the banking sector and among wholesale customers.

With euro banknotes circulating across euro area countries and beyond, the actual circulation of euro banknotes in Austria can only be estimated. For a number of years, the OeNB has based its estimations on the amounts of banknotes actually lodged with the OeNB, considering the velocity of circulation, amounts processed by cash handlers other than the OeNB or GELDSERVICE AUSTRIA (GSA) as well as data reported by banknote wholesalers. According to these estimations, around 627.4 million euro banknotes worth EUR 31.4 billion ²⁴ were in circulation in Austria at end-2019 (2018: 621.1 million banknotes worth EUR 31 billion). This corresponds to a 1% rise against 2018.

In the debate about whether to retain 1 cent and 2 cent coins, the OeNB and the Austrian Ministry of Finance are against abolishing these denominations, given their high degree of public acceptance and continued high demand. This is also the position Austria is promoting at EU-level meetings.

Banknote counterfeits recovered in Austria

Most incidences of counterfeit banknotes in Austria (around 35.9%) continued to be recorded in Vienna, followed by Styria (14.2%) and Lower Austria (11.7%). In 2019, the overall damage caused by euro counterfeits in Austria came to EUR 551,950 (2018: EUR 641,320).

At around 1.4%, Austria’s share in the total volume of counterfeits recovered from circulation in the euro area remained relatively low. This means that most people still have only a minimal chance of coming across counterfeit banknotes in Austria.

Payment systems for the Austrian ­financial market

New legal framework for payment ­services

The PSD2 implemented new standards for strong customer authentication for electronic payments initiated by payers, namely the use of so-called two-factor authentication to ensure that electronic payments at a point of sale (POS) or on the Internet as well as credit transfers made via online banking are initiated by authorized persons only. Three types of factors are available to identify authorized persons: knowledge factors (PIN or password), possession factors (bank card, classic transaction authentication number (TAN) or mobile TAN) and inherent factors (biometric feature, e.g. fingerprint). By definition, two-­factor authentication requires at least two of these three factors and aims to minimize fraud in electronic payments.

The Austrian Financial Market Authority (FMA) has extended the deadline by which strong two-factor customer authentication is mandatory for e-commerce transactions to ­December 31, 2020. In order to benefit from the deadline extension, payment services providers must submit their schedules for implementing two-factor authentication by end-2020 at the latest to the FMA and must keep the FMA ­informed about progress made.

Restructuring the Eurosystem’s market infrastructures

Consolidating TARGET2 (T2) and TARGET2-Securities (T2S) means integrating T2 and the T2S securities settlement system for both technical and functional reasons. TARGET2, which has been in use for more than ten years, had to be adjusted to changes in customer ­demands, regulatory requirements and technological developments. The launch of the new, integrated and enhanced TARGET system is scheduled for November 2021.

In November 2018, the Eurosystem successfully launched TIPS. TIPS enables participating banks to settle domestic and cross-border instant payments for their customers in real time around the clock, every day of the year. Real-time or instant payments are the latest ­innovation in payment services; based on this new development, European payment solutions are to be established for POS payments, in ­Internet trade (e-commerce), and for payments with mobile end devices (m-commerce) and ­between individuals.

The ECMS serves to manage eligible collateral for Eurosystem monetary policy operations. By November 2022, the 19 existing systems are to be functionally harmonized and one centralized technical system will be established for all Eurosystem NCBs.

Subsidiaries support the OeNB in fulfilling its tasks

Within European monetary union, MÜNZE is the official mint of the Republic of Austria. Its exclusive right to mint and issue coins in Austria is laid down in the provisions of the Coinage Act. In line with the prevailing legal provisions, MÜNZE meets the domestic demand for euro coins. In 2019, MÜNZE supplied the OeNB with a total of 176.7 million euro coins with a face value of EUR 43.0 million. Moreover, MÜNZE is internationally renowned for first-class precious metal processing and the production of innovative and durable precious metal investment products and collectors’ items. MÜNZE continually develops new and innovative product lines, e.g. collector coins and various coin series. Since the Italian legislator prohibited the production of 1 cent and 2 cent coins – despite continued local demand for these denominations – MÜNZE supplied euro coins directly to Italian cash-in-transit companies also in 2019, thereby ensuring that local demand for these coins could be met.

In its capacity as a Eurosystem technology partner, the OeBS focuses its R&D activities on technologies for the printing of security features and for banknote authentication sensors used in banknote-sorting machines that are employed in the cash cycle. Within the Euro­system, the OeBS produces the share of annual euro banknote production volumes allocated to Austria on the basis of the OeNB’s share in the ECB’s capital key. In 2019, the OeBS produced 113.95 million EUR 5 banknotes of the Europa series.

Individual tasks defined in the Eurosystem’s R&D strategy have been assigned to specific ­national central banks. Since 2012, the OeBS has been entrusted by the ECB to perform test prints for the Eurosystem and monitor patents to avoid unnecessary duplication in banknote prototype production.

The GSA, whose core tasks include cash ­logistics, was established as a limited liability company. Its majority owner is the OeNB, which holds a 95.34% share, with the remaining shares primarily held by Austrian commercial banks.

Banknotes returned from circulation are checked for authenticity and fitness at the GSA’s cash centers in Vienna, Graz, Linz, Salzburg, Klagenfurt, Innsbruck and Bregenz as well as at the OeNB and are recirculated if deemed fit for circulation. In 2019, a total of around 1.81 billion banknotes were processed in Austria.

Since 2011, the GSA has been operating a clearing house for the settlement of national ­interbank payments, Clearing Service Austria (CS.A). By providing this payment infrastructure, the GSA contributes to making noncash payments in Austria more efficient and secure.

On behalf of the OeNB, the GSA operates Clearing Service International (CS.I), which Austrian commercial banks may use to settle cross-border payments within the Single Euro Payments Area (SEPA).

The real estate investment group IG-Immobilien Gruppe serves to optimally manage the OeNB’s real estate investments. It is, inter alia, responsible for preserving and sustainably ­improving the value of OeNB real estate holdings and for optimizing current earnings on the individual properties. The premises management group BLM Betriebs-Liegenschafts-­Management GmbH provides, in particular, the premises the OeNB or its subsidiaries need to carry out their business activities.

Table 9 provides a comprehensive list of the OeNB’s direct and indirect equity interests.

The OeNB – a sustainable enterprise

The OeNB – an expert organization

Strategy review at the OeNB

The arrival of the new Governing Board members in 2019 also brought about organizational changes at the OeNB, which entered into force on January 1, 2020. Tasks and responsibilities were redistributed among the executive directorates to match the core competencies of the respective Governing Board members, and the OeNB’s business areas were optimized.

The OeNB embraces innovation

A conference the OeNB organized in January 2019 together with the Federal Ministry of Finance, the IMF and the Joint Vienna Institute (JVI) revolved around the Bali Fintech Agenda, a set of fintech policy guidelines developed by the IMF and the World Bank Group. The event was dedicated to discussing the importance and implications of technological change for the financial sector. Vienna was the first venue of a series of IMF fintech conferences that were held on all continents around the world.

New financial technologies ²⁵ and fintechs are a field the OeNB takes particular interest in. In the reporting year, OeNB experts broadened their interdisciplinary exchange on this topic to include, inter alia, research institutions (e.g. the Research Institute for Cryptoeconomics at Vienna University of Economics and Business), international institutions (e.g. the Bank for International Settlements) and other central banks (e.g. the Deutsche Bundesbank). In cooperation with the Deutsche Bundesbank, the OeNB assessed the technical feasibility and practical suitability of blockchain technology in payment services, generating valuable know-how in this specific area.

Managing human resources in dynamic times

Balancing work and family life

Moreover, in a work environment where change is the only constant, it is very important for employers to promote employees’ health and well-being. For this reason, the OeNB supports its staff with a wide range of measures, e.g. a company health center, medical checkups and a sports club. In 2019, the OeNB also organized a health day, inviting all staff members to participate in a comprehensive program to learn how to stay healthy at work.

Diversity and equal opportunities

Sustainable human resources management

Risk management

Financial risk

Market risk

The actual risk exposure depends on the amount of assets invested, including gold and unhedged Special Drawing Rights (SDRs), as well as on the amount of own funds and ­earmarked funds invested.

In addition, the OeNB makes provision commensurate to its relative share in the ECB’s paid-up capital for ECB investment risk and for risks arising for the ECB from conducting ­Eurosystem monetary policy operations.

The OeNB calculates the risk involved in real estate holdings using an index for real ­estate stocks that is also based on VaR calculations with a one-year horizon and a confidence interval of 99%.

Credit risk

Credit risk arising from Eurosystem monetary policy operations is calculated by the ECB and accounted for on a pro rata basis in OeNB risk reporting. Credit risk arising from holdings for own account and investments of own funds is calculated by the OeNB and taken into ­account when monitoring the use of the risk budget. VaR and ES calculations of ECB and OeNB risk are consistently based on a one-year horizon and a confidence interval of 99%.

Market liquidity risk

Operational risk

Information security risk

Keeping Austrians informed – the OeNB reaches out to the general public and target groups

The OeNB opens Instagram account
nationalbank_oesterreich

Targeted tools and apps to promote ­financial literacy

The online tool “PIA – Persönliche InflationsApp” helps young people explore and understand ­inflation-related topics. Users can put together their own basket of goods and calculate their “personal” inflation rate. Complementary worksheets make PIA well suited for classroom teaching.

The web application m€ins helps users monitor their personal income and expenditure, including cashflow on multiple accounts and savings book assets. This app has specifically been programmed to reflect cash transactions and comes with an extensive budget planning function. By netting planned and actual income with planned and actual spending, the tool yields the disposable income for the current month.

As in previous years, the OeNB continued to broaden and enhance its activities to reach out to students and teachers. In the winter semester of 2019, for instance, the OeNB offered an elective course on financial literacy at the Institute for Business Education at Vienna University of Economics and Business. Moreover, the OeNB organized university seminars on topics like monetary policy and was represented at various professional fairs.

Short explainer videos illustrate the OeNB’s key tasks and explain complex issues in an accessible way using images and visuals. Both the videos and related worksheets have been updated and provide great teaching material.

In 2019, the Euro Info Tour and Euro Shop Tour of the OeNB’s Euro Bus focused on the newly issued EUR 100 and EUR 200 banknotes of the Europa series. On the day the new banknotes were issued, the Euro Bus started its Euro Info Tour, which led through all Austrian provinces. During the Euro Shop Tour, the bus visited more than 90 shopping centers in Austria in two days, taking information on the newest banknote security features directly to the points of sale.

In August 2019, the OeNB’s Money Museum opened its special exhibition “WHO is WHO. Portraits on Austrian schilling bank­notes.” Audio guides to the exhibition are available in German and in English. Other highlights included the launch of the holiday activity program for young people organized by the City of Vienna (630 visitors to the Money Museum) and the annual Museum Night organized by the Austrian Broadcasting Corporation ORF (more than 1,000 visitors to the Money Museum). Overall, 336 tours and workshops were organized at the Money Museum in the reporting year. The ­so-called Tulfes hoard (1,200 medieval coins) was retransferred to ­Vienna from Tyrol and ­integrated into the collection of the Money Museum after having been on loan to the ­Department of Archaeologies for six years.

Expert conferences with broad impact

Studies, analyses and outlooks published in the OeNB’s scientific publications

In addition, the OeNB publishes a Working Paper series that features scientific working papers authored by OeNB researchers. On average, the OeNB publishes around ten working papers per year.

Finally, the semiannual Financial Stability Report essentially serves as the OeNB’s platform for providing an assessment of the yearly results ­reported by the banking and ­financial sector (first half of the year) and for presenting selected research evidence on financial stability issues (second half of the year). (See Notes, Periodical publications.)

Knowledge transfer to and from Austria and across Europe

Continuing strong demand for courses at the Joint Vienna Institute

In 2019, the number of course participants increased once more year on year, with 2,410 persons (women: 53%) attending courses during a total of 124 weeks of training programs. In 2019, the OeNB designed and organized eight JVI courses on the following topics: supervision and financial stability, European integration, HR and compliance, cash and payment systems as well as financial translation, editing and terminology with a central bank ­focus. Some of these courses were offered in cooperation with partners, in particular with the Federal Ministry of Finance, the Deutsche Bundesbank and the ECB. In addition, OeNB experts were invited to give lectures in many other courses offered at the JVI.

The OeNB increasingly provides expertise in the Western Balkans

The OeNB is committed to its social ­responsibility

Development aid

#PurpleLightUp – International Day of ­Persons with Disabilities

Shoah memorial at Ostarrichi Park

The OeNB promotes research, the economy, ­science, art and culture

Funding research and promoting the economy

In 2019, the Governing Board of the OeNB approved funding totaling around EUR
8.75 million for 69 Anniversary Fund research projects in the following areas:

• economics (33 projects):
  EUR 4.41 million
• medical sciences (16 projects):
  EUR 1.98 million
• social sciences (11 projects):
  EUR 1.30 million
• humanities (9 projects):
  EUR 1.06 million

Looking ahead, the focus of funding ­support from the OeNB Anniversary Fund was redefined in line with the OeNB’s strategy, mission statement and core tasks in a new guideline ­targeting central bank-related economic research topics. This strategic focus on promoting ­research on central banking topics is now based on 19 newly defined research clusters that were presented in roadshows at selected research ­institutions in late 2019.

Another type of funding is available under the European Recovery Program (ERP, more widely known as the Marshall Plan) that the United States had set up to help rebuild Europe after World War II. The OeNB was instrumental in implementing the initial program and continues to administer the ERP central bank assets. Most recently, the OeNB was managing 570 ERP loans granted in the industry, trade and services sectors, with an outstanding ­volume totaling EUR 656 million. In addition, the OeNB is represented on the ERP audit committee in a monitoring capacity and on
the ERP expert committees in an advisory ­capacity.

Committed to Austria’s cultural ­heritage

In the course of its long-standing cooperation with the Austrian radio station Ö1, the OeNB organized eight concerts throughout Austria in 2019 at which instruments from the OeNB’s collection were played. Additional concerts were held at Ossiach Abbey in cooperation with the Carinthian Summer Music ­Festival and at OeNB conferences.

From April to June 2019, 22 valuable Neue Sachlichkeit (New Objectivity) paintings from the OeNB’s collection were displayed in a ­special exhibition at the Albertina Museum in Vienna, among them works by Albin Egger-Lienz, Greta Freist, Herbert von Reyl-Hanisch, Franz Sedlacek, Rudolf Wacker and Alfons Walde dating to the 1920s and 1930s.

Six art objects from the OeNB’s collection went on loan to the new State Gallery of Lower Austria that was opened in Krems on May 25, 2019, and will be on display there until ­mid-2020. Another eight exhibitions both in Austria and abroad also featured artworks from the OeNB’s collection in 2019, thus making these works accessible to the public for a while.

New works the OeNB bought in the ­reporting year were mainly works created by contemporary artists, such as Herbert Brandl, Svenja Deininger, Helmut Gsöllpointner, Xenia Hausner, Martha Jungwirth, Ulrike Müller
and Walter Vopava. These purchases served to strengthen the focus of the OeNB’s collection on abstraction in contemporary art.

Environmental Statement 2019 – the OeNB as an ecological organization

The European Green Deal –
a unique opportunity for Europe

Updated Environmental Statement in line with EMAS Regulation (EC) No 1221/2009

By applying these instruments, the OeNB documents its effort to continuously improve its corporate environmental performance beyond statutory requirements. The OeNB’s environmental management system and related activities and procedures are an integral part of the OeNB’s business management. In 2015, the OeNB became entitled to use the Austrian Ecolabel and the EU Ecolabel for the production of brochures and other paper products ­according to the guideline for printed matter, initially for four years. In 2019, the two certificates were renewed by the then Federal Ministry for Sustainability and Tourism, on the basis of an overall assessment by a qualified independent audit agency. The renewal of the certificates confirms the resource efficiency of the OeNB’s printing facilities throughout the production process, from order intake to production and delivery. Today, the OeNB is a modern and efficient organization that remains committed to blending contemporary features such as sustainable process technologies and state-of-the-art waste management with more than 200 years of corporate history and tradition.

Environmental management at the OeNB – clear tasks and responsibilities

Environmental controlling at the OeNB creates transparency

The environmental management obligations with which the OeNB must comply by law (e.g. under the Austrian Waste Management Act and the Austrian Energy Efficiency Act) or as a result of voluntary commitments (e.g. under EMAS) are recorded in a legal register that is reviewed and updated regularly. If there are any relevant changes, the business areas concerned are informed accordingly and any action required will be initiated. All recurring tasks are managed via the environmental database and evaluated during internal reviews. So far, the OeNB has been fully compliant with the legal requirements.

Efficient energy management and ­electricity from renewable sources

Since 2010, the OeNB has purchased electricity from renewable sources only (hydroelectricity, wind, sunlight, biomass). This move has contributed to reducing the OeNB’s CO2 emissions by 50% compared with the use of conventional electricity. At the OeNB, electricity consumption is highest for ventilation and cooling systems and the IT data center. The OeNB’s commitment to economical energy consumption is reflected in the following measures in particular: use of energy-efficient LED lighting, integration of a photovoltaic system into the building facade of the OeNB’s Money Center, reduction of standby energy consumption, energy-efficient use of low external temperatures for room and server cooling, heat ­recovery, optimization of ventilation systems and centralized sunblind control.

While business travel by airplane has decreased slightly year on year, no clear trend is visible for business travel by car or train. To support the use of environmentally friendly transportation, the OeNB subsidizes the purchase of annual tickets for the Vienna public transport system. Moreover, to promote the use of bicycles as a means of transportation and to motivate staff not to use their cars, the OeNB’s EPT organized a bicycle maintenance event and added more docking and charging stations (green energy) for e-bikes and e-scooters.

Under a carbon offset agreement signed with the World Wildlife Fund For Nature (WWF) several years ago, the OeNB has been sponsoring projects to support flood control and help reestablish flora and fauna through the renaturation of floodplains and river meadows.

Sustainable use of materials and ­products

Waste generation

EMAS validation

This Environmental Statement, published by the Oesterreichische National­bank, Otto-Wagner-Platz 3, 1090 Vienna, has been validated in accordance with the EMAS Regulation by Quality Austria Trainings, Zertifizierungs und Begutachtungs GmbH, located at Zelinkagasse 10/3, 1010 Vienna, Austria, AT-V-0004.

The Lead Verifier of Quality Austria Trainings, Zertifizierungs und Begutachtungs GmbH herewith confirms that the OeNB’s environmental policy, its environmental program and environmental management system, its environmental review and its environmental audit procedures conform to Regulation (EC) No 1221/2009 of the European Parliament and of the Council of 25 November 2009 (EMAS Regulation), taking into account ­Commission Regulation (EU) 2017/1505 of 28 August 2017, and validates the relevant information for the ­Environmental Statement in accordance with Annex IV.

Vienna, January 2020

Martin Nohava, Lead Verifier

End of EMAS validation

The OeNB’s next Environmental Statement will be published as part of the OeNB’s Sustainability Report in spring 2021.

Direct and indirect equity interests