It comes as no surprise to Euromoney that Austrian officials have released a statement on how they plan to safeguard the country's AAA status, by implementing measures that include limiting future lending to their banks' Eastern subsidiaries, and drawing up living wills and resolution schemes.
The Austrian Financial Market Authority (FMA) and the Oesterreichische Nationalbank (OeNB) revealed that, after “intensive consultations”, the groups have formulated a plan to:
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“... make the business models used by Austrian banks operating in Central, Eastern and Southeastern Europe (CESEE) more sustainable. These measures will be published as prudential guidelines before the end of 2011.”
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The package of sustainability-boosting measures is meant to strengthen banking groups’ capital adequacy and to improve CESEE subsidiary banks’ refinancing options as follows:
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First, to bolster banking groups’ capital bases, the Basel III rules will be implemented fully as soon as they take effect on January 1, 2013 (the participation capital subscribed under the bank support package will be included in the capital base).
Second, as from January 1, 2016, banks will be obligated to hold an additional common equity tier 1 ratio of up to 3%, depending on the risk inherent in the respective business model.
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Only two weeks ago, Euromoney revealed that Austria was “embracing austerity” to protect its rating, as Michael Spindelegger, vice chancellor, foreign minister of Austria and leader of the Austrian People’s Party – the junior member in the ruling coalition – said the country was “doing everything”, while also hitting out at Italy by proclaiming that it was taking only “isolated measures” to reform its finances.
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“Austria has done quite well and recovery is good," he says. "External demand has set the stage for a swift recovery.”
However, Spindelegger was also keen to point out that Austria still needed to implement various reforms before he would be satisfied with its fiscal state. He pointed to a debt-to-GDP ratio of around 74% – modest in comparison to a number of European countries – as a figure that needed improvement.
“A debt rate of 74% is not the end of the story," he says. "We must reduce our debt every year.”
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The FMA and the OeNB emphasised that to promote the subsidiaries’ refinancing structure, credit growth will be conditional on the growth of sustainable local refinancing, comprising mainly local deposits but also local issuance activity and supranational funding.
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In the future, subsidiaries that are particularly exposed must ensure that the ratio of new loans to local refinancing (i.e. the loan-to-deposit ratio including local refinancing) does not exceed 110%. Moreover, banks will have to draw up living wills and resolution schemes to hedge for potential crisis situations.
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The FMA executive board member Kurt Pribil and OeNB Governor Ewald Nowotny added in a statement:
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“Austrian banks doing business in CESEE rely heavily on a business model that centers on traditional retail banking, both in Austria and in CESEE. This model will be further strengthened and hedged thanks to these new provisions. This set of measures will provide a sustainable growth model both to the CESEE economies and to the banks active in the region, irrespective of pronounced boom-bust cycles. Not only will the measures benefit the stability of the local financial markets, but Austria’s exposure to this region will also become more sustainable.”
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- Euromoney Skew Blog
