Performance of Austrian Banks Remarkably Down
Austria seems to be significantly „overbanked“: Austrian banks only achieve a 0.1% yield on the capital employed.
The profitability of Austrian banks has reached a new low last year. Return on investment came at 0.1%. Above all, this is due to write-offs in Central and Eastern Europe. Only in Hungary, write-offs totaled about € 1.0bn. Erste Group recorded losses in Hungary and Romania, Bank Austria´s earnes were lowered by the subsidiary in Kazakhstan. VBAG suffered from losses in Romania.
However, the domestic banking industry´s performance was also impressed by the low earnings in Austria. OeNB´s governor Ewald Nowotny called Austrian banks to improve their equity base. On average, the core capital quota of Erste Group, RBI and Bank Austria is 10.4%. The Eurpean average is 12.0%, though.
Recently the IMF criticized that the big exposure of Austrian banks in Central, Eastern and Southeastern Europe (CESEE) would be a substantial risk factor. According to the IMF, the strong presence of Austrian banks in the region is favorable. The expansion of the banking sector was „too ambitious“, however. In some cases, the expansion should have been slowlier.
Some countries would show high non-performing loan quotas, which is bad for loan takers as well as banks, IMF stated. „We do not share this view.“ Ewald Nowotny, Governor of Austria´s Central Bank (OeNB) replied. „As Austrian Central Bank, we regard the expansion of Austrian banks towards Central and Eastern Europe as success story.“ Not only the banks, but also the affected countries have benefitted, Nowotny argued.
Another weak point would be the big number of bank branches, the IMF criticized. „The profitability of the Austrian banking business was relatively low in the last years.“ The IMF recommends the Austrian goverment to implement a comprehensive strategy to get rid of relics.