In addition to the Internal Capital Adequacy Assessment Process (ICAAP) and the Internal Liquidity Adequacy Assessment Process (ILAAP), the Supervisory Review and Evaluation Process (SREP) forms part of the more comprehensive Supervisory Review Process (SRP).
Those Austrian credit institutions, that are subject to the Supervisory Review Process, are described in the section on Banking Union (see the left navigation bar).
The general criteria and methodologies for the supervisory review process (SRP) within pillar 2 are disclosed this section of the website. The FMA hereby fulfils its obligations pursuant to Article 143 (1) (c) of Directive 2013/36/EU in conjunction with Article 3 of Commission Implementing Regulation (EU) No. 650/2014 as amended by Commission Implementing Regulation (EU) 2019/912.
The credit institution itself is responsible for conducting the ICAAP and ILAAP. Under Article 39a BWG, the ICAAP encompasses all plans and procedures of the credit institutions, “to determine on a regular basis the amount, the composition and the distribution of capital available for the quantitative and qualitative coverage of all material risks from banking transactions and banking operations and to hold capital in the amount necessary.” (Article 39a para. 1 BWG).
According to the provisions relating to the ILAAP, in addition, credit institutions must “have in place suitable strategies, policies, processes and systems for the identification, measurement, management, monitoring and limitation of liquidity risk over an appropriate set of time horizons, including intra-day, to ensure that they maintain adequate levels of liquidity buffers. These strategies, policies, processes and systems shall be tailored to business lines, currencies, branches and legal entities.” (Article 39 para. 2 BWG in conjunction with Article 12 para. 1 KI-RMV).
The selected approaches need to be proportional to the nature, scope and complexity of the banking transactions conducted (principle of proportionality).
During the SREP, the credit institution’s self-assessment is compared against the legal requirements and a review conducted about whether all relevant rules are observed and whether the credit institution’s risk assessment is adequate and complete. In so doing, supervisory authorities follow harmonised EBA Guidelines that are required to be applied by all European supervisory institutions as well as a framework methodology stipulated by the SSM. Further information about the SREP and Pillar 2 can be found on the EBA website.
In this context, the EBA Guidelines for common procedures and methodologies for the supervisory review and evaluation process (SREP) and supervisory stress testing (EBA/GL/2022/03), in particular, act as a reference. The SREP consists of four principal components:
- business model analysis,
- evaluation of internal governance and the institution-wide controls,
- evaluation of the capital risks, and
- evaluation of the risks to liquidity and funding.
The individual results of these components are then drawn together at the end of the process to form a conclusive overall assessment. Under Article 70 para. 4a BWG, supervisory authorities have various quantitative and qualitative measures (supervisory powers) at their disposal to be able to react appropriately to a credit institution’s specific situation.
Please refer to the detailed presentation for a general and holistic overview of the methodological aspects of the Austrian SREP for less significant institutions (LSIs).
The legal basis for the risk review is defined in Article 69 para. 2 BWG, Article 39 paras. 1 and 2 BWG in conjunction with the KI-RMV as well as Article 39a BWG. In accordance with Article 69 para. 2 BWG, the FMA is required, taking into consideration the nature, scale and complexity of the banking transactions conducted by credit institutions and groups (principle of proportionality) to supervise the adequacy of the capital that is available for the quantitative and qualitative coverage of all material risks from banking transactions and banking operations, as well as the adequacy of procedures pursuant to Article 39 paras. 1 and 2 BWG (General Due Diligence Obligations) as well as Article 39a BWG (ICAAP).
In so doing, especially the risks listed in Art. 39 para. 2b BWG must be considered.
In the interests of promoting transparency and to allow credit institutions to roughly classify their individual results, the aggregated results of the Austrian LSI SREP are published below in the downloads (in German only). They are updated at the end of the year based on the results from the preceding year.
The first chapter “Allgemeines” (general information) contains key information like the number of LSIs subject to an assessment, their aggregated total assets, their share of the Austrian market as a whole and the depth of the survey explained in greater detail. The following chapter on “Schwerpunkte” (focus areas) contains an overview of the areas on which particular attention was paid. However, this does not mean that other areas of the SREP were not analysed. This is followed by an overview of the classification of the LSIs in the chapter “Minimum Engagement Level”.
The fourth chapter, “SREP-Ergebnisse” (SREP results), provides an overview about the distribution of the results/SREP scores from the four main components of the SREP (including a granular insight into the SREP scores for capital risks) and the distribution of the “Overall SREP score”. The Overall SREP Score (OSS) in the risk assessment improved to 2.0 (previous year: 2.26) due to the sound profitability situation as well as the strengthened capital base, while liquidity adequacy and internal governance remained stable. At the same, the expected increase in SREP add-ons (P2R) materialised as a result of an increase in capital risks (especially credit risk). The risk-sensitive Risk-by-Risk Approach in Austria has accordingly led to a distribution among the individual P2Rs, with the median being 2.6% (previous year: 2.1%) and the mean 2.8% (previous year 2.5%). Credit risk in a broad sense (including concentration risk, participation risk etc.) constitutes the most significant risk category in terms of the average amount of the P2R, with the interest rate risk in the banking book (IRRBB) also contributing notably.