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Austrian banks achieve sound results in European stress test. Generation of capital in recent years has proven effective and has increased the banking sector’s resilience against crises.

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The European Banking Authority (EBA) and the European Central Bank (ECB), in cooperation with the Oesterreichische Nationalbank (OeNB) and the Austrian Financial Market (FMA) as well as the other national supervisory authorities has performed a stress test on 89 European banks. The results of the stress test were published today, and they show that the European banking sector’s resistance against crises is good. Due to a reduction in non-performing loans and cost-cutting measures, it was possible to overcome a considerably harder scenario than in the 2018 edition of the stress test.

Austrian banks: capital quotas under stress in “mid-table” among European banks

The six Austrian banks participating in the stress test also proved themselves to be resilient, and overall were positioned in mid-table among European countries. The performance of the individual banks in however heterogeneous, which can be attributed to their differing business models. The activities in a few countries (including also in Austria) well less strongly affected than those in others based to a certain degree on the government measures taken to support the economy. Together with the initial capitalisation, that the banks entered the stress test with, this is a significant driver behind the results. All Austrian banks continue to meet the legal capital requirements even following the application of the hard stress scenario.

“The pandemic has shown that the path predefined by the supervisor for improving the capital base of Austrian banks has proven to be a correct one. There are therefore in a position that they are able to act as a reliable partner for the economy even in difficult times. This approach must be continued in order to also be well equipped to handle future crises”, remarked the FMA’s Executive Director, Helmut Ettl as the results of the stress test were published.

“The result ties in with our expectations, but there is no reason for celebration,” added the OeNB’s Deputy Governor, Gottfried Haber. “The banks still have further work to do with regard to their cost effectiveness, improving their profitability and must exercise caution in the disbursement of profits in order to generate capital,” Haber remarked further.

The harder stress scenario reflects the uncertainty of the pandemic

The stress test investigated the impact of a hypothetical three-year shock on banks’ balance sheets. Due to the forecasting uncertainty because of the COVID-19 pandemic, a harder scenario was chosen than in the previous edition of the European stress test conducted in 2018. Supervisors assumed a longer prevailing pandemic for the stress test couple with a sharp economic slump and higher unemployment. Negative exchange rate developments, falling real estate prices and an increase in defaulting loans lead to losses in this scenario, that cause the erosion of banks’ capital quotas.

Stress test results provide a valuable input for ongoing supervision

The stress test delivers a number of important results for banking supervision. However, there is no clearly defined threshold, below which a bank is deemed to have “failed” the stress test. Instead, the process as a whole allows qualitative and quantitative results to be obtained, which are then fed back into the assessment of the banks, and which are used to determine necessary additional capital buffers. These may also be higher or lower depending on the risk profile of the individual bank in question.

Background information

The European Banking Authority (EBA), together with the European Systemic Risk Board (ESRB), the European Central Bank (ECB) and the national supervisory authorities, conducts an EU-wide stress test every two years for larger banks. The previous stress test of this kind was held in 2018, with the current edition, which was originally planned for 2020, being postponed to 2021 due to the situation surrounding the pandemic. In total, 89 banks from the euro area were covered by the stress test, and collectively they account for around 75 % of total assets of the banking sector. For 38 banks (from Austria: Erste Group Bank and Raiffeisen Bank International) the stress test was conducted under EBA’s lead. For the stress test for the remaining banks (from Austria: BAWAG, Raiffeisenlandesbank Oberösterreich, Volksbank and Sberbank) the ECB was in the lead. Results are published for all banks. More detailed results are published for the former group on the ECB website. For the latter group (made up of somewhat smaller banks) the ECB publishes important key figures and limits its statements about the impact on the capital ratio to scales of magnitude. 

At the same time, the OeNB and the FMA also conduct a stress test for those Austrian banks that are not covered by the EU-wide stress test. The aggregated results are published by the OeNB at the end of November in its Financial Stability Report.

Journalists may address further enquiries to:

Klaus Grubelnik (FMA): Tel.: +43 (0)1 24959 6006; +43 (0)676 88 249 516; [email protected]

Dr. Christian Gutlederer (OeNB): Tel.: +43 (0)1 404 20 6900; [email protected]