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FMA and OeNB welcome European initiatives for quicker addressing of non-performing loans

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The Austrian Financial Market Authority (FMA) and the Oesterreichische Nationalbank (OeNB) welcome the joint initiative of the European Commission and Single Supervisory Mechanism (SSM) to take preventive measures against a renewed increase in levels of non-performing loans in Europe. The initiatives focus on the more rapid and resolute handling of non-performing loans and thereby also enable more new business. “The Global Financial Crisis has shown the credit quality of banks is primarily decisive during periods of upturn. We must not let up in light of the currently positive development, since the granting of credit in accordance with lax standards in times of upturn subsequently leads to too high levels of non-performing loans,” remarked the FMA’s Executive Directors, Helmut Ettl and Klaus Kumpfmüller.

According to figures from the European Commission, the proportion of non-performing loans in the consolidated bank balance sheets of Austrian banks fell to 3.8 % during the third quarter of 2017. In addition to write-downs and recoveries, the selling of portfolios of non-performing loans also made a significant contribution to this reduction. The level of non-performing consumer and corporate loans in subsidiary banks in Central Eastern and South Eastern Europe fell particularly strongly (from 13.9 % to 7.5 %*), while in Austria there was also a slight reduction at a low level (from 4.7% to 3.2%). Figures from the European Central Bank (ECB) and the European Banking Authority (EBA) show that levels for Austrian banks are below the average for the EU as a whole. Furthermore, Austrian banks have high provisioning ratios (impairments to non-performing loans) in comparison with Europe a whole. While the provisioning ratio for all European banks is 50.7%, Austrian banks have a provisioning ratio of 63.8%. Overall, no unexpected impairments are to be anticipated for Austrian banks.

The reduction and adequate provisioning of non-performing loans has been of the utmost priority for supervision in Austria since the outbreak of the financial crisis and are also the result of consequent supervisory activity. The issue of standards for the granting of credit, in particular in relation to residential property, will continue to remain in the supervisory focus in Austria. “The timely provision of loans is in any case a meaningful, forward-looking measure, from which both the banks as well as the economy as a whole will profit. In the current positive economic environment banks are profiting from very low credit risks costs. An economic downturn or changes to the interest rate environment could, however, rapidly change this situation, meaning that the banks must use the current period to strengthen their earnings capacity,” remarked the OeNB’s Deputy Governor, Andreas Ittner.

In the future, under the European Commission and SSM’s measures, banks throughout Europe will be obliged to uniformly adjust the value of non-performing credit exposures within two years (unsecured exposures) or seven years (secured exposures) respectively or otherwise to deduct them from their Tier 1 capital. The European institutions’ initiatives are therefore focused towards the future. The Commission’s proposed regulation applies for loans granted after the regulation enters into force.

The text of the European Commission’s proposal can be found at: https://ec.europa.eu/info/publications/180314-proposal-non-performing-loans_en

 

*This percentage relates to the second quarter of 2017.

Journalists may address further enquiries to:

Klaus Grubelnik (FMA) Dr. Christian Gutlederer (OeNB)

+43/(0)1/24959-6006 +43/(0)1/404 20- 6900

+43/(0)676/882 49 516