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Austria’s banks defy the crisis

I.n Austria, the scandal-ridden insolvent financial institution Commerzialbank is currently dominating the headlines in the industry. Although it is a small regional provider, the deposit insurance will come into play to an extent that has never been the case between Bregenz and Eisenstadt. This in turn affects the big industry representatives because they have to refill this pot. This does not apply to Erste Group as the market leader. After all, the top institution of the Austrian savings banks has its own deposit insurance and is not affected by the general one. On the other hand, Raiffeisen Bank International (RBI) is consulted through its group.

These two banks are among the top dogs in post-communist countries. Since the fall of the Iron Curtain, they have worked intensively on Eastern Europe and have earned a lot there. Over a long period of time – after the collapse of the American investment house Lehman Brothers in 2008 and the ensuing turmoil in the global economy – both did well in comparison with their European competitors. In a shorter observation period since the beginning of the year, the development is less exciting.

Erste Group is currently very popular with analysts and is trading at EUR 21. The share price has thus lost almost 40 percent since the beginning of the year and a little more than the European Stoxx banking index. The heavyweight in Vienna’s leading index ATX is far from its all-time high of EUR 61.50 in April 2007.

“Everyone has made a lot of provisions so far”

The development of the shares of Raiffeisen Bank International (RBI) is similar. Its price is hovering around 16 euros and has lost around 30 percent since the beginning of the year. It is now worth a seventh of its highest value since it went public in 2005. In contrast to Erste Group and RBI, Bawag is not geared towards Eastern Europe, but towards German-speaking countries. The former union bank has not given investors any price gains since going public. Likewise, the Balkan-oriented Addiko Bank, which was only issued last year, is under water.

But there is much to suggest that the banks will come through the crisis caused by the corona pandemic relatively well. Both Austria and the other core markets should do comparatively well. “Up to now, everyone has made a lot of provisions without having a major bankruptcy”, says Roland Neuwirth, manager of the Liechtenstein fund Salus Alpha.

Accordingly, RBI shines with a risk coverage ratio for receivables of 63 percent in the second quarter, which makes it one of the top group in Europe. The non-performing loans of the second largest financial institution were at 1.9 percent of the total loan portfolio at the end of the half-year, 0.2 percentage points below the value of the previous year. The Executive Board attributed this primarily to the higher credit volume. Despite currency devaluations, the customer loan volume rose by around 3 percent.

The rating agency Moody’s also sees Austria’s banks as well positioned in the Corona crisis. Since the outbreak of the Corona crisis, Moody’s has examined a good one and a half dozen European banking markets, only six of which have received a stable outlook. In addition to Austria, these are Ireland, Poland, Sweden, Switzerland and the Czech Republic. Moody’s sees a recovery from the second half of the year, but also fears more non-performing loans and thus pressure on profits.

In Austria, however, there were relatively few bad loans at the beginning of the crisis and the government’s large aid programs with short-time work and support for companies would dampen the effects of the recession, it is said. As of the end of June, due to the Corona crisis, the banks deferred around 10 percent of the existing loan volume to companies, self-employed and private households. “We can see that the Austrian banks have done their homework and are in good shape,” praised the credit checkers. Their capital buffers are now helping to overcome the crisis and secure jobs.

Scenario analyzes by the Oesterreichische Nationalbank (OeNB) also show that the financial sector is currently well capitalized despite the negative effects of the crisis. This is shown in the central bank’s recently published financial market stability report. With rising insolvency figures and loan defaults, the Common Equity Tier 1 capital ratio is expected to decrease from an average of 15.5 percent at the end of 2019 to 13.1 percent at the end of 2021.

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