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Austria’s banking sector: Facts & Figures

Updated September 2019 – For earlier editions of Facts & Figures click here

Following several years of a marked upswing, the growth of the Austrian economy has been decelerating for some month by now. In 2019, the GDP is forecasted to increase by a rate between 1,5% and 2% after nearly 3% growth. in 2018.  A modest development of main export markets and the uncertainties due to global trade conflicts and Brexit dampen the economic dynamic.

The unemployment rate, which has fallen for some years will remain low at a level between 4.5% and 5%. Increasing numbers of employed people will be facilitated by higher labour force participation of older people and women. Consumer price inflation, which has been above the EU average for some years, is expected to go down, slightly, to below 2%. The current account surplus will remain at approximately 2% of GDP.

The Maastricht budget balance of the general government was positive in 2018 for the first time since the 1970s. The public households will also show surpluses in the forthcoming years, if not a dramatic deterioration of the economic situation occurs. Public debt, which had reached more than 80% of GDP following the great recession and restructuring measures of some banks, has decreased significantly. Due to the surplus of public households and the successful resolution of bad bank vehicles the public debt ratio declined to about 70% and will reach the Maastricht criterion of 60% in a few years.

Austria has a highly developed banking sector. The Austrian banking network consists of nearly 600 banks (according to the Austrian definition, which is broader than that of the CRR) with some 3,600 branches, making it one of the most densely banked in Europe (2,400 inhabitants per branch). However, the trend towards self-service, online banking and banking apps 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 8.5% to 73,500 at year end 2018.

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 several sectors, the biggest ones are the joint stock and private banks, the Raiffeisen sector and the saving banks. 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. However, significant parts of the population show a strong propensity to use cash, supported by free and easy access via 8,770 ATMs.

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. Although it rose in 2018 due to the dynamic economic conditions by 4.8% to €855 billion, it was lower, by approximately one fifth, than in 2008. 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 €426 billion in 2018. Loans to non-bank borrowers have remained more or less static in past years but have shown signs of an upturn recently. They amounted to €452 billion at year-end 2018.

Low interest rates and the flat yield curve provide a very challenging environment to the banking industry. Nevertheless, the consolidated annuals accounts of Austrian banks, which include the CESEE subsidiaries, show a rising net interest income. The operating results and net profits increased as well. The Common Equity Tier 1 (CET 1) ratio has shown an upward trend over recent years and came to 15.4% at year-end 2018. This is still below the average of European peer banks and, therefore, a further consolidation, i.e. a continuing shift from branches to online and mobile banking as well as a reduction of employment, can be expected.

Contributor: Dr. Wolfgang Sützl suetzl@bankenverband.at

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