Austria’s banking sector: Facts & Figures
Updated September 2018 – For earlier editions of Facts & Figures click here
The Austrian economy has been in an upswing for several years now and has left the impact of the financial crisis behind. While in 2016 tax reductions stimulated private consumption, exports drove growth significantly in 2017. Moreover, the rising capacity utilization stipulates private investment. Gross domestic product (GDP) growth amounted to roughly 3% in 2017 and is expected to remain strong in 2018 and 2019.
The rising production has led to significantly higher employment. However, the unemployment rate will decrease only slightly and remains high compared to Austrian pre-crisis levels due to rising labour force participation of older people and women. Consumer price inflation is about 2% and therefore slightly higher than the average of the Euro area. The current account surplus will remain at approximately 2% of GDP.
The Maastricht deficit of the general government has been below 1% of GDP since 2017 and could switch to a surplus in 2019. Public debt, which had reached more than 80% of GDP following the great recession and restructuring measures of some banks, declined below this level in 2017. Due to the favourable economic conditions and the successful resolution of bad bank vehicles the public debt ratio will decline further in the coming years, but is expected to remain above the Maastricht-threshold for a longer period.
Austria has a highly developed banking sector. The Austrian banking network consists of nearly 600 banks (according to the Capital Requirements Regulation definition) with – besides the widely-used access to online banking – some 3,700 branches, making it one of the densest in Europe (2,400 inhabitants per branch). However, the trend towards self-service and online banking has induced a consolidation both of credit institutions and branches. Starting with the financial crisis, this development has accelerated since 2016. Since 2008 the number of employees decreased by 8.2% to 74,000 at year end 2017.
The Austrian banks’ geographical focus apart from their home market is Central Eastern and South Eastern Europe (CESEE).
The Austrian banking industry can be divided into seven sectors, namely joint stock banks and private banks, state mortgage banks, (originally rural) Raiffeisen credit cooperatives, savings banks, (originally commercial) Volksbanken credit cooperatives, building and loan associations and special purpose banks. The biggest sectors are the joint stock banks and private banks and the Raiffeisen sector. The joint stock banks, including the central institutions of the cooperative groups and savings banks, have Austrian as well as foreign shareholders. Only very few banks have a public entity as a shareholder.
Besides the dense network of branches, 90% of the population over 14 years old uses debit or credit cards. For some years the share of contactless debit cards, has continued to rise, and contactless mobile solutions which integrate the debit card into a smart phone have been rolled out. Notwithstanding, compared to a number of other European countries, significant parts of the population show a strong propensity to use cash, supported by the easy access via 8,700 ATMs free of charge.
In line with the global trend of deleveraging, the balance sheet total of the Austrian credit institutions has decreased since the outbreak of the financial crisis. At year end 2017 it was lower, by approximately one fourth, than in 2008, declining in 2017 by 2% to €815 billion. This reduction has been primarily caused by significantly shrinking interbank exposures and investments in securities. Deposits are the private households’ preferred way of holding financial assets in Austria. Insurance products are ranking second, albeit at significantly smaller volumes than deposits. They are followed by stocks and interest-bearing securities. Non-bank deposits have increased steadily over this period and amount to €403 billion in 2017. Loans to non-bank borrowers had remained more or less static in past years but have shown signs of an upturn recently. They amounted to €427 billion at year end 2017.
Low interest rates and the flat yield curve provide a very challenging environment to the Austrian banking industry. Despite shrinking net interest income, increasing commissions income and strict cost management provided better operating profits and profits after tax. The Common Equity Tier 1 (CET 1) ratio has grown steadily over recent years to approximately 15%, but this is still below the average of European peer banks. Therefore, a further consolidation, i.e. a continuing shift from branches to online and mobile banking as well as a reduction of employment, will take place.
Contributor: Dr. Wolfgang Sützl firstname.lastname@example.org