Austria’s central bank said the country’s lenders should do more to boost capital and profitability in order to become more resilient to economic crises.
Austrian lenders’ combined equity Tier 1 ratio, a gauge of financial strength, rose 0.65 percentage points to 11 percent last year, the central bank said in its latest financial stability report published today. International peers still have considerably higher capital ratios, Executive Director Andreas Ittner said in a statement.
“Weak operating results, which continued in the first quarter of this year, show that we don’t have any room for self-satisfaction,” Ittner said at a press conference in Vienna. Last year, profitability improved largely due to one-time effects like the buyback of hybrid bonds, he said.
The capital weakness adds to risks from the banks’ position as the biggest lenders in eastern Europe. Austrian banks, led by Erste Bank Group Bank AG, Raiffeisen Bank International AG and UniCredit Bank Austria AG, had an exposure of 277 billion euros ($356 billion) to the region at the end of 2012, according to the central bank. In countries like Romania, Croatia and Hungary, bad loans are rising while credit demand remains weak.
The banks’ average return on assets in eastern Europe was 0.8 percent last year, compared to 0.3 percent in Austria, the central bank said. However, the performance in individual countries of the region differed, it said. Higher profitability is also linked to higher risks, it said.
The low profits of Austrian banks won’t allow them to provide funds to the national budget, build a resolution fund and increase capital at the same time, Ittner said.
Chancellor Werner Faymann said that Austria, which holds general elections in September, should extend a bank levy to pay the costs of ailing lender Hypo Alpe Adria International AG. Finance Minister Maria Fekter opposes this, saying a national resolution fund, which is foreseen in new rules on handling failing banks agreed upon by European Union finance chiefs last month, is enough.
Austria’s banks need to find as much as 8 billion euros until 2022 to comply with new capital rules known as Basel III, including 1 billion euros of common equity Tier 1 capital, the central bank said. The main challenge remains to replace 5.15 billion euros of state aid by 2017, when it stops counting as core capital, it said.
Erste is in the process of selling 660 million euros of new stock to help pay back 1.2 billion euros of state aid. Raiffeisen may sell shares to help redeem its 1.75 billion euros of state aid, Chief Executive Officer Karl Sevelda said last month. Bawag PSK started repaying its 550 million euros of state aid with a first tranche of 50 million euros last month.