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Austria’s banking sector: Facts & Figures

The Austrian economy has shown clear signs of an economic upswing since 2016 following several years of weak economic growth and deteriorating labour market conditions. While in 2016 tax reductions stimulated private consumption, in recent months the strengthening international trade also contributes to increasing aggregate demand. Gross domestic product (GDP) growth will reach about 2% in 2017 and 2018 after 1.5% in 2016.

The number of employed persons is expected to increase significantly. 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 expected to accelerate somewhat and to approach nearly the ECB target level of below 2%. The current account surplus will remain at approximately 1.5% of GDP. The Maastricht deficit of the general government is expected to fall below 1% of GDP in 2018 after a small rise to 1.5% in 2016. However, public debt declines only slowly and amounts to approximately 80% of GDP.

Austria has a highly developed banking sector. The Austrian banking network consists of 615 banks (according to the CRR definition) with – besides the widely-used access to online banking some 3,900 branches, making it one of the densest in Europe (2,200 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. 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 shareholder.

Austrian banks offer a well-developed and state of the art payment infrastructure via all common channels. 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 debit cards with near field communications (NFC), or contactless cards, has continued to rise rise, and contactless and mobile solutions by integrating the debit card into a smart phone have been rolled out. Banks also provide a cross-border solution for secure online payments. Notwithstanding, compared to some other European countries, significant parts of the population show a strong propensity to use cash, supported by the easy access via 8,500 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 2016 it was lower, by approximately one fifth, than in 2008, declining in 2016 by 2.5% to €834 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-MFI deposits have increased steadily over this period and amount to €366 billion in 2016. Due to the low economic growth, loans to private borrowers have remained more or less static in recent years, and amounted to €375 billion at year-end 2016.

Low interest rates and the flat yield curve provide a very challenging environment to the Austrian banking industry. Despite this pressure on the operating income, decreasing loan loss provisions brought about only modestly declining net profits in 2016 compared to 2015. The CET1 ratio of approximately 14% is solid, but 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.

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