Austria Tells Banks to Build Buffers on Eastern Risks

Austrian regulators imposed a so-called systemic risk buffer on the country’s biggest banks to account for the financial-stability risks posed by their operations in eastern Europe.

UniCredit Bank Austria AG, Raiffeisen Bank International AG, and Erste Group Bank AG must have buffers of common equity Tier 1 capital, a measure of financial strength, equivalent to as much as 3 percent of their risk-weighted assets, the Financial Market Stability Board, or FMSB, said on its website on June 1. The buffer will be introduced in two steps: 2 percent by mid-2016 rising to 3 percent a year later.

The capital requirement, foreseen in European Union law, will be applied above the 8 percent minimum for Austrian banks set by the European Central Bank in the supervisory review and evaluation process, the regulator said.

“Firstly, the ‘systemic vulnerability’ of Austrian banks shall be countered with a 1 percent buffer,” the FMSB, which comprises the Finance Ministry, the central bank, the FMA regulator and the Fiscal Council, said in the statement. “Secondly, the ‘systemic cluster risk’ shall be addressed with a buffer of as much as 2 percent.”

Erste and Raiffeisen declined in Vienna after the announcement. Raiffeisen’s share fell as much as 2.5 percent to 13.30 euros, the lowest in two months. Erste was 0.7 percent lower at 26.235 euros by 4:11 p.m.

After two decades of venturing beyond Austria’s borders, Bank Austria, Raiffeisen and Erste are among the biggest lenders by assets in eastern Europe. That yielded extra profits in the years to 2008 as consumers and companies in the region began to catch up with their richer western neighbors. When the region plunged into economic crisis starting in 2009, they became a risk to the Austrian economy.

Erste and Raiffeisen both have ownership structures that complicate capital raising. Erste’s biggest shareholder is an indebted charitable foundation that has no other significant revenue source than Erste’s dividends. Raiffeisen is owned by a group of cooperative banks that also rely on its dividends. Bank Austria is fully owned by Italy’s UniCredit SpA.

The 3 percent systemic risk buffer will apply to Bank Austria, Erste, Raiffeisen and Raiffeisen’s owner Raiffeisen Zentralbank Oesterreich AG. A 1 percent buffer will be imposed on smaller banks including Bawag PSK Bank AG, two of RZB’s owners, several regional lenders owned by Austrian provinces, and on Vienna-based Sberbank Europe AG.

Erste’s CET1 ratio stood at 10.2 percent at the end of the first quarter, while Raiffeisen’s was 9.9 percent. The Austrian central bank has warned for more than 4 years in its financial stability reports that Austrian banks’ capital ratios lagged those of its peers with similar risk profiles.

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