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Austria’s Ittner Says Banks Undercapitalized Versus Peers

Austria’s six biggest banks have less capital and rely more on wholesale funding than their peers in eastern Europe, and they need to build up their risk buffers, the central bank’s chief bank supervisor said.

The lenders, which include Erste Group Bank AG (EBS) and Raiffeisen Bank International AG (RBI), have an average Tier 1 capital ratio of 9.4 percent, compared with 10.2 percent for 15 international banks active in the region, the central bank’s Andreas Ittner told journalists in Vienna today. The Austrian banks have lent 147 percent of their deposits compared with 127 percent for their peers, which means they have to raise more funding in the market, Ittner said.

“In our view it is necessary to beef up the risk buffers and improve the capital ratios,” Ittner said. “We appeal to them to put as much as possible into the strengthening of capital. We are in permanent talks to the banks about this.”

Erste, Raiffeisen and UniCredit SpA (UCG)’s Bank Austria are the biggest lenders in the former Communist part of Europe. They compete with KBC Groep NV (KBC), Societe Generale (GLE) SA, Intesa Sanpaolo SpA (ISP) and Swedbank AB. (SWEDA)

In total, Austrian banks make 60 percent of their consolidated net income in this region, and a third of their exposure is in “higher risk” countries, Ittner said. Profit originating from eastern Europe increased rapidly before the financial crisis, and Ittner said the central bank didn’t want that repeated.

‘Unlimited Growth’

“Banks shouldn’t return to the old growth models but should aim for a new, sustainable, normality,” he said. “We don’t want to return to the way things were before: unlimited growth without appropriate risk buffers.”

Ittner repeated a central bank estimate that the Alpine nation’s banks need to raise 10 billion euros ($14.5 billion) by 2019 to reach the minimum requirement of 7 percent core Tier 1 capital under the new Basel III banking rules, and to repay 5.9 billion euros in state aid. He also said that the lenders are aware that the minimum level won’t be sufficient.

“All banks know that if they only hold the minimum level, they won’t have access to particularly cheap refinancing,” Ittner said. He said the central bank wouldn’t formally set a higher limit than the Basel minimum itself, like Switzerland, the United Kingdom and Sweden have.

Ittner declined to predict if all three Austrian banks undergoing this year’s European Union stress test would pass the exercise. “If I knew that already we wouldn’t have to calculate this,” he said. Apart from Erste and Raiffeisen, Oesterreichische Volksbanken AG (VBPS) will participate for the first time in the test.

To contact the reporter on this story: Boris Groendahl in Vienna at bgroendahl@bloomberg.net

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net

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