Austria’s central bank: banks secured against wave of insolvencies


National Bank of Austria

In its report, the OeNB recommends that banks refrain from buying back shares and carefully weigh dividends.

(Photo: Reuters)

Wien The Oesterreichische Nationalbank (OeNB) expects an increase in insolvencies and thus a deterioration in the credit quality of domestic banks after the state aid measures expire.

From today’s perspective, however, the risks are manageable because the institutes have already taken precautions and their capitalization has improved significantly compared to the financial crisis, according to the central bank’s financial market stability report published on Wednesday. The results of the current stress test would also show that the Austrian banking sector has an adequate risk-bearing capacity.

“For future challenges resulting from the Covid-19 pandemic, the Austrian banks already started to increase their risk provisions in the first half of 2020,” said Vice-Governor Gottfried Haber. This led to a sharp drop in profits in the first half of the year. A similar development can be seen at the subsidiary banks in Eastern Europe.

The central bank expects the second lockdown in November to lead to a renewed, but smaller economic slump than in spring.

Profitability above the European average

The banks are capitalized enough to continue to provide the real economy with loans, it said. Bad loans could have been reduced significantly in recent years and the profitability of the institutes is above the European average.

In its report, the OeNB recommends that banks refrain from buying back shares and carefully weigh dividends. The financial institutions should prepare for the expiry of payment moratoriums and government guarantees for loans and adhere to sustainable lending standards, especially for real estate loans, advises the OeNB.

In addition, the central bank recommends further increasing operational efficiency and developing and implementing suitable strategies for dealing with challenges arising from new information technologies.

More: Fitness studios are threatened with bankruptcies en masse.

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