Austria – Banking Sector

Jan. 21, 2011

Summary Points

  • December 21, 2010. As of the end of September, non-cosolidated balance sheet total of the Austrian banks fell below one billion euros to EUR 987.46 billion (USD 1.299 billion) for the first time since mid-2008, the National Bank of Austria (OeNB) announced on Tuesday.
  • December 2, 2010. According to estimates of the central bank OesterreichischeNationalbank (OeNB) Austrian banks will need an additional sum of EUR 15-18 billion (USD 19.7-23.7 billion) in share capital, due to the introduction of Basel III regulations on tier-one capital and other regulatory requirements, until the end of 2019/2022.
  • November 22, 2010. The CEO of RaiffeisenZentralbankÖsterreich AG, Walter Rothensteiner, has warned that stakeholders in Austrian banks may decide to invest in nonbanking companies instead because of the planned Austrian bank levy, Der Standard reported Nov. 15.
  • November 15, 2010. Austrian banks have decreased the exposure of Ireland from EUR 6.8 billion (USD 9.27 billion) at the end of September 2009 to EUR 3.4 billion (as of the end of June).
  • September 13, 2010. The new Basel III equity capital requirements will impact Austrian banks, which would need additional capital of between EUR 15 billion (USD 19.2m) and EUR 33 billion, Stefan Bruckbauer, chief economist of Bank Austria, said for news agency APA on Monday.
  • August 27, 2010. Austrian banks have reduced their share of private forex loans in the Eurozone from 48% to 41.6% since January 2007.
  • August 11, 2010. "The problems are in southeastern Europe: Croatia, Romania and Bulgaria do not have this strong export economy," Stepic said.
  • August 11, 2010."Hungary and Romania [are] the greatest risk to Erste's expected profitability. Both countries face budgetary pressures - and reining in government budget deficits by cutting wages could mean higher loan losses."
  • August 11, 2010.“The second or third quarter of 2011 should be the time when the overall volume of non-performing loans ceases to rise," Herbert Stepic, CEO of Raiffeisen, warned Germany's Handelsblatt.
  • August 11, 2010. In Romania, 25.5% of all Austrian bank loans were nonperforming in March, followed by Kazakhstan (21%), Serbia (16.5%) and Ukraine (13.7%); Hungarian nonperforming loans soared to 10.6% from 3.9% between March 2008 and March 2010. The Czech Republic and Slovakia were noticeably less affected, with about a 6% ratio of nonperforming loans. The loans are mostly to the finance sector.
  • July 28, 2010. Austrian bank BAWAG decided to sell its 9.77% stake in MKB Bank, APA reported quoting BAWAG CEO Byron Haynes.
  • July 1, 2010. According to press reports, the Austrian bank BAWAG may sell its 10% stake in Hungary's MKB Bank following the European Commission's (EC) approval of a capital injection by the Austrian state worth EUR 550mn (USD 672.42mn).
  • June 26, 2010. Regional cooperative banks own 58 percent of Volksbanken, Germany's DZ Bank owns 25 percent and Austrian cooperative peer RZB 6 percent and a unit of Munich Re, 10 percent.
  • April 28, 2010. Austria was prepared to lend Greece up to two billion euros (2.64 billion dollars), more than double the 858 million euros previously discussed, Proell said.
  • April 12, 2010. Austrian Erste Group reportedly had exposures of around one billion Euros in Greece at the beginning of this year, 700 million Euros of which were government bonds. Raiffeisenzentralbank (RZB) said recently it had investments of less than 300 million Euros in the country EU leaders recently agreed on a "rescue plan" for. Volksbank AG bosses said most of its 187 million Euros of investment in Greece were loans, while BAWAK PSK officials announced it had government bonds of around 90 million Euros in the country. Bank Austria (BA) meanwhile failed to make a statement.
  • April 5, 2010. In Bosnia and Herzegovina, Raiffeisen International's balance sheet total of ? 2.3 billion at the end of 2009 ranked it first in the local banking sector, with a market share of around 20 per cent.
  • April 5, 2010. In Slovakia, the balance sheet total of Raiffeisen International's subsidiaries stood at ? 9.3 billion at the end of 2009, making it the third-largest bank in Slovakia.
  • April 1, 2010. Last year $23.1 billion of sovereign and corporate bonds were sold in Slovakia, Slovenia and the Czech Republic, according to data compiled by Bloomberg. That compares with $13 billion raised in debt sales in the three countries in 2008, the data show. A total of $100.2 billion of bonds were sold by Austrian issuers in 2009.
  • March 10, 2010. "We agree that the region will resume growth, but we are aware that it will be fragile, at least for the next two years."
  • March 10, 2010."We forecast the peak in terms of non performing loans in the region between the end of 2010 and the first half of 2011, with the peak in cost of risk in 2010," said UniCredit analysts.
  • March 10, 2010. Romania's chief banker MisuNegritoiu said the financial group would raise its credit volume by 10 to 15 percent this year, while the UniCredit group would inject 2 billion euros (2.71 billion U.S. dollars) in Bank Austria, its unit which manages most of its Central and East European subsidiaries.
  • January 13, 2011. Russian billionaire Victor Vekselberg has been granted a credit line for CHF 2 billion (EUR 1.6 billion/USD 2.06 billion) by six banks, including Austrian banks Bank Austria and Raiffeisen, daily WirtschaftBlatt reported on Thursday. Raiffeisen´s share in the credit line amounts to 10 percent.

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The new ailing Austrian empire
August 11, 2010 Wednesday
BYLINE: David Brierley
SECTION: LONDON SCRAWLING
LENGTH: 841 words
HIGHLIGHT: Austrian banks have expanded eagerly into the former Habsburg territories but face real economic challenges.
David Brierley is a senior writer with SNL Financial. The views and opinions expressed in this piece are those of the author and do not necessarily represent the views of SNL.
Modern Austria may be a small, landlocked nation, but the fall of the Iron Curtain allowed entrepreneurial Austrian bankers to go where the Habsburg empireonce held sway.
The results are sobering. Leaving aside the little local difficulty of Hypo Alpe-Adria-Bank AG,which have become market leaders between Prague and Moscow. At the height of the financial crisis, it was feared that their exposure could bring down Austria itself, as if the former empire might take a final, bitter revenge. The International Monetary Fund programs in easternEurope have since stabilized the position, but the worst is still not over.
"[In eastern Europe] we have not emerged from the financial crisis at all. In March, I would definitely have been more positive. Yet the Greek crisis has created great additional uncertainty, particularly in the East. The second or third quarter of 2011 should be the time when the overall volume of non-performing loans ceases to rise," Herbert Stepic, CEO of Raiffeisen, warned Germany's Handelsblatt.
Stepic insisted that it was important to distinguish between those countries that are exporting nations, such as Poland and the Czech Republic, and those that are not. "The problems are in southeastern Europe: Croatia, Romania and Bulgaria do not have this strong export economy," Stepic said.
A survey of nonperforming Austrian bank loans in central and eastern Europe published by the FIW, the Austrian international economics research institute, is sobering indeed. In Romania, 25.5% of all Austrian bank loans were nonperforming in March, followed by Kazakhstan (21%), Serbia (16.5%) and Ukraine (13.7%); Hungarian nonperforming loans soared to 10.6% from 3.9% between March 2008 and March 2010. The Czech Republic and Slovakia were noticeably less affected, with about a 6% ratio of nonperforming loans. The loans are mostly to the finance sector.
These risks clearly weigh heavily on Austrian banks. Stefan Nedialkov of Citigroup Global Markets in a note on Erste Bank remarked: "Hungary and Romania [are] the greatest risk to Erste's expected profitability. Both countries face budgetary pressures - and reining in government budget deficits by cutting wages could mean higher loan losses."
Interestingly, five of Erste Bank's savings bank shareholders have announced their intention to sell 0.9% of their holding. It is hard to think they would do this if they saw a swift recovery in the region.
Romania's austerity program received IMF, EU and World Bank approval Aug. 4, hence securing further financial support, while the Hungarian government looks set to face further tough negotiations. Hungary dismayed the financial authorities by failing to implement an austerity budget, opting instead for a bank tax and thus leading to a breakdown in talks.
Even in a severe downturn, there are opportunities for banks with strong franchises. Citi is very impressed by OTP Bank Nyrt., Hungary's leading bank with a 30% deposit market share, 11 million customers in central and eastern Europe and some 1,600 branches. "OTP has weathered the financial crisis admirably and is coming out of the crisis better capitalized. While the economic recovery remains muted and the risk of further substantial loan losses remains ... we think the market still under-appreciates the bank's strong franchises in Hungary and in Bulgaria," a Citi note reported.
The risks cannot be easily discounted. Hungarian nonperforming loans now amount to $21.4 billion, about 19% of the total, according to the Hungarian banking supervisor. No wonder buyers are not engaging actively in a banking M&A boom even though many banks are up for sale, largely because of EU conditions on the state rescue of ailing banks. Only the sale of Bank Zachodni WBK SA looks certain to proceed. BayernLB Holding AG's disposal of MKB Bank Zrt. and Hypo Alpe-Adria-Bank's withdrawal from five European countries are proceeding slowly. Both Dexia SA and KBC Group NV have to sell or float off eastern European subsidiaries, but the processes are slow and the markets are not favorable, in any sense.
Alessandro Profumo, CEO of market leader UniCredit, said he does not expect to see any significant sales in the region this year.
This leaves the possibility of organic growth in very difficult circumstances. According to FIW, Austrian banks are continuing to expand cautiously in the region, notably in expanding their branch networks in the Czech Republic, Russia and Romania. This eastern European expansion continues despite the probable need for new equity capital for the local bank subsidiaries. Austria is not willing to renounce its latest strategy for eastern Europe just yet. It will, however, take time to come good.
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Update On the (Bad) Situation of Austrian Banks
August 27, 2010 Friday 12:01 AM EST
BYLINE: The Prudent Investor
LENGTH: 710 words
Aug. 27, 2010 (The Prudent Investor delivered by Newstex) -- Tight-lipped finance ministers from Austria, Germany, Switzerland, Liechtenstein and Luxembourg left a round table meeting in Vienna on Thursday without any statement to the public. According to Austrian Börse-Express talks centered around government budgets and bank secrecy (that's no pun.)
Austrian finance minister Josef Pröll had said earlier that Austria will not move on a loosening of bank secrecy as long as UK based trusts are able to invest anonymously and wants to shift this discussion onto the OECD level.
Conservative Pröll, currently breaching Austria's constitution with the nod of social democrat chancellor Werner Faymann, because both ruling parties want to delay the 2011 budget until after two provincial elections in October, may have other worries about the Austrian banking sector on his mind.
Recent data from Austria's central bank confirms that Austria's banks, mainly Raiffeisen group and Erste Group, are still heavily dependent on favorable forex crosses, i.e. Central Eastern European (CEE) currencies and the Swiss Franc.
The Economist today had this graph based on data from OesterreichischeNationalbank (OeNB) that shows that CEE inhabitants are highly leveraged with foreign currency loans that become more expensive day by day as long as the Swiss Franc and the Euro rise against their domestic currencies.
The sub-headline "A slow fuse still burns on eastern Europes foreign-currency debts" could not be more courtly given Austria's dominant position in the foreign currency loan business in the Eurozone.
From the Economist:
In early August a number of banks operating in the region reported sometimes startling rises in loan losses. Among them were UniCredit, Erste Group and OTP. It had been hoped that loan losses would start falling. Instead they have continued to climb”alarmingly in some cases. In Kazakhstan more than a third of outstanding debt is non-performing. In Latvia, almost a fifth of debt is going bad.In Hungary and Poland the proportion of debt that is souring is below 8, though in both countries it is still rising and, because their economies are bigger, their bad debts can cause more havoc. Non-performing loans in Ukraine are officially below 10% of the total, but quirks in the tax law punish banks for writing off loans. The IMF reckons the true figure is closer to 30%.The main reason for the sharp rise in bad debts is that borrowers had became unhealthily addicted to loans in foreign currencies, such as the Swiss franc, which offered lower interest rates than local-currency debt. In Hungary almost two-thirds of household debt is in foreign currencies (see chart). In Latvia about 90% of all private borrowing is. A steep rise in the value of the Swiss franc against local currencies has increased the burden of debt and interest payments on the regions borrowers. The strains have been made worse by collapsing housing markets and the general economic slowdown.While observers of Austria's role in CEE may not exactly be surprised - find an overview of CEE bank players here- I am a bit worried that recent OeNB data shows that Austrian banks have reduced their Eurozone share of forex loans by less than a fifth since January 2007.
GRAPH: Austrian banks have reduced their share of private forex loans in the Eurozone from 48% to 41.6% since January 2007. The small to midsize banks of this tiny country of 8 million still hold by far more forex loans than any other Eurozone bank sector on the national level. I am not sure whether the Austrian arm of Italy's Unicredit Group is included in this data set or nt. Data: OeNB, ECB. Austrian banks have drastically curbed domestic lending to both consumers and businesses in the last 2 years and it is an open secret in the chatty Cafes of Vienna that they survive primarily by a reluctance to write down loans to their real market value.
It was the bankruptcy of then Rothschild-owned Creditanstalt in 1931 that led to the European depression. If one of Austria's top 3 banks falters, and this is more a when-question, we may see a rerun of history. It won't be nice, to say it courtly.
DISCLOSURE: No related position but a vital historical interest.
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Austria : Berenberg Bank Opens Vienna Office to Tap Austria, E. Europe
April 1, 2010 Thursday
BYLINE: datta03
LENGTH: 385 words
Berenberg Bank, the German private bank founded in 1590, opened a Vienna investment banking unit to tap the Austrian and eastern European bond markets.The branch is being run by Robert Hengl, 42, who previously was the head of OesterreichischeVolksbanken AG s fixed-income and derivatives team, said Martin Zezula, who heads sales to financial institutions at Berenberg in the Austrian capital. The Vienna office consists of 12 members with vast experience in fixed-income markets, said Zezula, who also is a former Volksbanken employee.
The branch is focusing on fixed-income trading and sales with institutional clients, Zezula, 39, said in a telephone interview. In addition to Austria, the team will be responsible for Slovakia, Slovenia, the Czech Republic and also for the German provinces of Bavaria, Baden-Wuerttemberg, Sachsen and Thuringia. Berenberg Vienna received Austrian regulatory approval on March 22 and is in the approval process for eastern Europe.Berenberg is also considering expanding further into countries such as Croatia, Zezula said.
Last year $23.1 billion of sovereign and corporate bonds were sold in Slovakia, Slovenia and the Czech Republic, according to data compiled by Bloomberg.That compares with $13 billion raised in debt sales in the three countries in 2008, the data show. A total of $100.2 billion of bonds were sold by Austrian issuers in 2009.
We are active in primary and secondary markets with a special focus on Austrian issuers as we will support Austrian banks in placing their bonds, Zezula said. Our vision is, together with our teams in Hamburg and Dusseldorf, to assist small and mid caps in entering the fixed-income markets in the same way as Berenberg has already successfully shown with equity transactions.
Mirroring Berenberg s German business, the Vienna branch will deal will all types of fixed-income asset classes, Zezulasaid. Including the Vienna office, the bank s fixed-income sales trading team now consists of more than 20 people covering institutional clients.
Hamburg-based Berenberg s net income increased 38 percent to 65.1 million euros ($87.2 million) last year, the company said last month.In addition to investment banking, which is managed by HendrikRiehmer, Berenberg has private banking and asset management units.