The 2011 EU-wide stress testing exercise, which the European Banking Authority (EBA) carried out in cooperation with the Austrian Financial Market Authority (FMA) and the Oesterreichische Nationalbank (OeNB) amongst others, yielded the expected results for the three directly participating Austrian credit institutions:
Erste Bank Group (EGB) and Raiffeisen Bank International (RBI) are found to be in a position to cope well with a renewed recession assumed under the stress scenario, even under the narrow definition of capital chosen by the EBA. Under the stress scenario, their core tier 1 capital ratios would be 8.1% and 7.8%, respectively.
The Österreichische Volksbanken AG (ÖVAG), by contrast, remains below the 5% threshold required by the EBA, featuring a core tier 1 capital ratio of 4.5% under the stress scenario. However, if the restructuring measures which the ÖVAG discussed with the FMA and the OeNB and which are already under way are implemented in a timely manner, the ÖVAG’s tier 1 capital ratio would come to between 6.5% and 7% under the stress scenario, even under EBA criteria. Based on current Austrian legislation (i.e. taking into account all loss-absorbing capital instruments according to the Austrian Banking Act), the ÖVAG’s core tier 1 capital ratio would be 7.0% even under the EBA stress scenario.
“The EBA stress test confirms our expectations: The Austrian banking sector is resilient to crises in general. The overall results show that with respect to capital adequacy, our major banks rank well above average. A further strengthening of banks’ capital bases would be desirable at any rate, however,” OeNB Governor Ewald Nowotny pointed out. Kurt Pribil, Executive Director of the FMA, added, “The results confirm our position that in the run-up to Basel III and as a means of crisis prevention, the quality and quantity of domestic banks’ capital should be sustainably improved beyond the legal minimum requirements.” With regard to the ÖVAG stress test result, fellow Member of the FMA Executive Board Helmut Ettl said, “The EBA stress test points to the weaknesses that have already been addressed by the FMA and for the correction of which a package of measures has already been agreed upon with the ÖVAG. These measures must be implemented by the end of the year according to an exact time schedule.” And Andreas Ittner, OeNB Executive Director, remarked, “For the ÖVAG, the present stress test proves the necessity of the restructuring measures that are already under way. The supervisors are closely monitoring this process.”
As the third stress test to be carried out at EU level for Europe’s major banking groups, the 2011 stress testing exercise serves to assess the crisis resilience of credit institutions and of the market as a whole. It aimed at showing to what extent banks’ capital bases would change under a severe economic shock by end-2012. This time, the new European Banking Authority markedly tightened its assumptions under the stress scenario compared to those of the previous two exercises.
Thus, the benchmark for the risk-bearing capacity of core tier 1 capital was defined within a very narrow band and in deviation from current European legislation, anticipating the envisaged Basel III capital framework. Preference shares, privately held participation capital and hybrid capital, inter alia, remained unconsidered. Moreover, the stress scenario was tighter than in last year’s exercise. Under the stress scenario, aggregate economic growth slows down at a rate that is four percentage points lower for the EU (and five percentage points lower for Austria) than in the European Commission’s end-2010 forecast, which served as the baseline scenario. This corresponds to a deviation that is one percentage point higher, in both cases, compared to the previous year. In addition, a strong increase of interest rate levels and risk premiums on European government bonds (differentiated by countries) was factored in. Apart from an increase in credit and market risks, augmenting refinancing costs and a particularly severe shock of the securitization portfolio were taken into consideration as well.
Under these very strict assumptions, the core tier 1 capital ratio of Erste Group Bank decreases from an initial 8.7% (end-2010) to 8.1% (end-2012) and that of Raiffeisen Bank International from 8.1% to 7.8%, respectively. This means that the core tier 1 capital ratios of both major banks remain well above the 5% threshold even under the stress scenario. The two banks thus clearly rank among the top half of all 90 participating banks. In the case of ÖVAG, however, under the same scenario the core tier 1 capital ratio would go down from 6.4% to 4.5% and would thus be below the minimum required by the EBA. Given the restructuring measures already agreed upon with the supervisors but not yet finalized at the stress test cutoff date (sale of RZB shares, sale of Volksbank International, spin-off of VBAG’s banking business into Investkredit), the resulting core capital ratio under the EBA stress test scenario is between 6.5% and 7.0%. In principle, it must be pointed out that in its stress testing exercise the EBA did not acknowledge certain Austrian core capital instruments (e.g. privately held participation capital) in order to ensure that a uniform definition of capital was applied across the EU. Taking into account these core capital instruments, which are loss-absorbing according to current Austrian law, the ÖVAG’s core tier 1 capital ratio would be 7.0% even under the EBA scenario; once the restructuring measures are in place, this ratio would rise to 9.8%.
Apart from Erste Group Bank, Raiffeisen Bank International and the ÖVAG, which directly participated in the EBA stress testing exercise, UniCredit Bank Austria was indirectly included in the exercise via its Italian owner, UniCredit Group. The result for UniCredit Bank Austria will not be shown separately, but is part of the result for the Italian UniCredit Group. Together, these four banks account for more than 50 % of the Austrian banking sector. The EBA stress test is carried out in cooperation with the European Central Bank (ECB), the European Commission, and national supervisory authorities and central banks such as the Austrian Financial Market Authority (FMA) and the Oesterreichische Nationalbank (OeNB).
Journalists may address further enquiries to
Klaus Grubelnik (FMA) Christian Gutlederer (OeNB)
+43/(0)1/24959-5106 +43/(0)1/40420-6622
+43/(0)676/882 49 516 +43/(0)664/122 1376