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International Monetary Fund
Published Date:
January 2000
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I. Challenges of European Financial Integration: The Case of Austria1

A. Introduction

1. European banks are at a crossroad. After decades of a high degree of segmentation and limited competition, European banks are increasingly likely to impinge on each other’s turf, upsetting the status quo: the introduction of the euro allows euro area banks to take full advantage of possibilities existing in the single market for financial services, uninhibited by exchange rate risk. At the same time, new countries are knocking at the door of the European Union, creating new opportunities but also new challenges for European banks. Large changes are likely to take place in the coming years, posing significant challenges for policymakers.2

2. Like other European banks, Austrian banks are likely to be profoundly affected by the changes taking place in European banking. The penetration of foreign banks is low in the Austrian banking sector, possibly reflecting national preferences but probably also other barriers to entry such as the large presence of mutual ownership. Moreover, domestic competition has been limited, at least until the abolition of the interest rate agreements in 1993. There are many signs that competition has become much keener as a result of both foreign penetration and more aggressive market strategies, and it is likely to become keener still. The new European financial landscape is, however, not only presenting challenges but it is also offering significant opportunities for Austrian banks. In particular, the eastern enlargement of the EU is likely to benefit Austrian banks, given the country’s geographic position and historical ties to the central and eastern European countries in transition (CEECs).

3. This section describes key features of the Austrian financial system, analyzes current trends in Austrian banking and discusses appropriate regulatory responses to the changing financial environment. It argues that financial supervision will increasingly face the challenge of establishing effective supervision of cross-border banking. For Austrian banks, this relates particularly to the greater exposure to the CEECs through their subsidiaries, but it also relates to the Austrian banks’ need to deal more and more with foreign banks (or foreign participation) in Austria itself. Keener competition could heighten the probability of bank failures and financial distress, with the effective resolution of crisis banks becoming crucially important in such an environment.

B. Main Structure of the Austrian Financial System

4. As is the case in most of Europe, the Austrian financial system is heavily bank based. Although growing in importance, securities markets (both fixed-income and equity3) are relatively small (Table I-1). Banks account for nearly three-fourths of company borrowing and virtually all of household borrowing. In contrast to the banks in neighboring Germany, Austrian banks do not have significant industrial holdings; cross-share holdings between insurance companies, brokerages, and banks are common, however.

Table I-1.Indicators of Financial Sector Structure(In percent)
Banks’ Market Share 1/Bank Credit Share 2/Stock Market Capitalization 3/Bank Assets 3/
Austria68 (1998)80 (1998)14 (1995)253 (1998)
Netherlands57 (1996)73 (1993)90 (1995)114 (1995)
Germany76 (1996)89 (1993)24 (1995)119 (1995)
United Kingdom53 (1996)56 (1993)127 (1995)117 (1995)
France70 (1996)74 (1993)34 (1995)99 (1995)
Sources: Occasional Paper 181, “The Netherlands: Transforming a Market Economy,” Box 4.1, pp. 44, using Borio (1995); Huizinga (1998); White (1998); OeNB; and staff calculations.

Assets of banks (not including insurance companies within the same group) as a percentage of assets of all financial institutions.

In percent of total credit. Credit refers to credit to firms and households from domestic financial institutions plus any securities outstanding.

In percent of GDP.

Sources: Occasional Paper 181, “The Netherlands: Transforming a Market Economy,” Box 4.1, pp. 44, using Borio (1995); Huizinga (1998); White (1998); OeNB; and staff calculations.

Assets of banks (not including insurance companies within the same group) as a percentage of assets of all financial institutions.

In percent of total credit. Credit refers to credit to firms and households from domestic financial institutions plus any securities outstanding.

In percent of GDP.

5. The Austrian banking system is divided into three different groups (Figure I-1):

  • The savings banking sector is the largest sector (market share: 30 percent of total bank lending to non-banks).4 The savings banks have been called “ownerless” since their founders (municipalities or credit associations) cannot “participate in the equity or profits of [the banks].”5 In effect, although the “backers” are restricted from injecting or withdrawing capital (through, e.g., dividends) into or from the banks, the savings banks that were founded by municipalities (Gemeinde savings banks; more than a third of the savings banks) are in many ways similar to publicly owned institutions and the savings banks founded by credit associations (Verein savings banks) are similar to mutual institutions. The savings banking sector is organized in a two-tier system with one central institution (Erste Bank) providing payment and other services to the smaller saving banks. In order to improve the access to capital, a 1993 amendment to the Savings Bank Act allowed the creation of a new type of joint stock saving banks owned by the original “ownerless” bank. This amendment has opened the way for a gradual introduction of outside owners in the saving banking sector.
  • The commercial banking sector (market share: 26 percent) includes mostly joint stock banks and the publicly owned Postal Savings Bank (PSK).
  • The cooperative banking sector (market share: 26 percent) consists of two groups of banks: the agriculture-based Raiffeisen banks and the industrial credit cooperatives (Volksbanken). Both groups are organized in a multi-layer system,6 with Raiffeisen Zentralbank (RZB) and Österreichische Volksbank acting as central institutions, respectively.

Figure I-1.Austria: Market Shares of Lending to Non-Banks by Different Banking Groups

(In Percent of Total Bank Lendings to Non-Banks)

Sources: Oesterreichische Nationalbank; and staff estimates.

6. The remainder of the banking sector (about 12 percent of bank credit to domestic non-banks) comprises regional mortgage banks, building societies, and special purpose banks. The eight regional mortgage banks (responsible for about 5½ percent of bank lending to domestic non-banks) are basically regional banks, providing a wide range of financial services in addition to their core mortgage business. Although several of the banks have been partly privatized and all except one are joint stock companies, they issue provincially guaranteed mortgage bonds (Pfandbriefe). Building societies(Bausparkassen) are used to channel subsidized savings7 into the provision of mortgages (about 5 percent of non-bank domestic lending). Finally, the special-purpose banking sector comprises factoring companies or companies specializing in providing long-term financing.

7. As in other European countries, these groups reflected the economic needs when the banking system was established in the nineteenth century. With technological change and improved efficiency of the financial system, the different banking groups have increasingly entered into each other’s traditional markets. In the local markets, for example, the agricultural Raiffeisen banks, regional mortgage banks, and the savings banks often compete for the same customers. Although many features of the original separations remain, including in the organization of deposit insurance, there are basically no longer any geographical or functional restrictions on the different banks’ activities. The most conspicuous sign of the progressive breakdown of the barriers between the different banking sectors was the acquisition of Creditanstalt A.G., a commercial bank, by Bank Austria A.G., a savings bank, in 1997.8

8. A striking feature of the Austrian banking system is its large share of banks with cooperative or mutual ownership. Although mutually owned institutions are prevalent throughout Europe, the share of mutually owned institutions is particularly high in Austria (Table I-2).9 The origins of these institutions can be traced back to the early nineteenth century, when their purpose was to provide savings vehicles and credit to low-income groups of society. Mutual and cooperative banks are still subject to separate laws but most of their privileges (and, similarly, restrictions on their activities) have been abolished over the past twenty years.

Table I-2.Ownership Structures in Banking, 1998(Percent of total assets)
Public/State (A)Mutual/Coop. (B)Total (A+B)Foreign 1/
Austria2/1(10)39 (30)403
France 3/1192012
Germany 4/3814523
United Kingdom06652
Sources: National central banks, European Commission; and Fund staff estimates.

1997; includes branches of foreign banks (source: European Commission).

Bank Austria is included proportionally to the public sector share of the votes. In parentheses: municipal savings banks are considered as public/state owned.

The specialized Caisse des Dépôts et des Consignations is not included (assets of about 3 percent of all banks). The 10 percent public stake in Crédit Lyonnais is included proportionally to the public sector share of the votes.

Landesbanken (owned by the Länder), savings banks (owned by the municipalities), and state-owned mortgage companies (estimated asset share: 2 percent).

Sources: National central banks, European Commission; and Fund staff estimates.

1997; includes branches of foreign banks (source: European Commission).

Bank Austria is included proportionally to the public sector share of the votes. In parentheses: municipal savings banks are considered as public/state owned.

The specialized Caisse des Dépôts et des Consignations is not included (assets of about 3 percent of all banks). The 10 percent public stake in Crédit Lyonnais is included proportionally to the public sector share of the votes.

Landesbanken (owned by the Länder), savings banks (owned by the municipalities), and state-owned mortgage companies (estimated asset share: 2 percent).

9. The presence of state-owned banks has been significantly cut over the last decade. The central government’s equity stake in the seven largest Austrian banks has been cut from 23 percent in 1991 to 6 percent by end 1999. The remaining share reflects the stake in PSK (the postal bank) and some smaller specialized institutions; PSK is scheduled to be fully privatized by the end of 2000. The remaining central government holdings in the banking sector will then represent less than 0.2 percent of total bank assets.

10. A purely formalistic categorization of Austrian banks runs the risk of overlooking the remaining importance of (general) government control. Although formally “ownerless,” the municipal control over the municipal savings banks, which account for about 9 percent of total bank assets, is large: by law, the mayor heads the savings bank supervisory board. The political influence on the municipal savings banks can also be seen in the municipal guarantee of their liabilities (“deficiency guarantee”). However, the importance of informal links with public entities will be significantly reduced following agreement in July 2000 for the takeover of Bank Austria by Hypovereinsbank, a German bank. With the 1999 amendment to the Saving Banks Act, holding companies of joint-savings banks can now convert into foundations (Privatstiftung), which in the case of the municipal savings banks implies that no new municipal guarantees will be extended (the guarantee will remain in place for old liabilities). While the removal of the formal links to the municipality will potentially result in more independent decision making, informal links are likely to remain strong after the transformation to a foundation; most of the previous members of the savings bank board will remain on the management board (or supervisory board) of the foundation. Such links can probably be effectively cut only by strengthening the banks’ accountability to their shareholders or depositors.

C. The Challenge: European Financial Integration

11. While the single European market in financial services was in theory established in 1992, this market is still far from a reality. Throughout Europe, the national markets have been difficult to penetrate, reflecting partially the “natural” advantage of local branch networks, national brand names, exchange rate risk, and language barriers, but also policies benefiting “national champions.” In addition to the more or less open discouragement of foreign takeovers,10 the prevalence of mutual or cooperative ownership and local government ownership (or control) has also complicated potential cross-border takeovers in many European countries.

12. There are indications, however, that this is about to change. First, the size and importance of cross-border mergers are increasing: the most notable examples are the merger between Fortis of the Netherlands and General Bank of Belgium in 1998—creating the nineteenth largest banking group in Europe—and several large cross-border mergers in the Nordic countries (e.g., MeritaNordbanken). Second, a number of cross-border cooperation agreements have been concluded, often involving small equity participation. Third, the advent of Internet banking has reduced the barriers to entry in the market for both investment services and for retail banking: a dense “brick and mortar” branch network may very well turn out to be a heavy burden for the incumbent banks. Fourth, the introduction of the euro removed in one stroke all remaining restrictions on direct cross-border lending in the euro area.

13. For Austria, the competitive challenge is likely to come mainly from German and Swiss banks, reflecting, inter alia, similar language, business culture, and industrial base. The commercial interest of German banks has resulted partly in direct participation in Austrian banks (e.g., the 46 percent participation in Bank für Arbeit und Wirtschaft (BAWAG), a bank representing about 4 percent of total banking assets in Austria) and partly in direct lending by foreign banks to Austrian companies.

14. The sharp drops in interest margins and performance measures (return on equity and return on assets) over the last five years or so bear witness to this increase in competitive pressure (Figure I-2). It is significant that, after an increase in 1997 and 1998, the performance measures followed the interest margin downward. This suggests that the narrowing of the interest margin is not a simple shift from interest to fee income, but reflects a more fundamental change in business conditions. The savings banking and Raiffeisen banking sectors exhibit the sharpest drop in interest margins, suggesting that these banks had benefited from a more protected business environment than other banks.

Figure I-2.Austria: Profitability and Cost Efficiency, 1987-99

Sources; Oesterreichische Nationalbank; OECD; and staff estimates.

15. Growing competition does not appear, however, to have been accompanied by a fall in costs. Most noticeably, the cost-to-income ratio (operating costs as a share of total operating revenue) appears to have been stable at best (Figure I-3). However, in the first quarter of 2000, the costs-to-income ratios declined for the biggest banks and for the banking sector as a whole. Only the regional mortgage banks seem to have been able to cut costs over the last decade. In the case of the joint-stock banks there appears to have been a trend increase in the costs-to-income ratio. A similar picture emerges with respect to employment and branches: despite the larger number of ATMs and the introduction of on-line banking, the total number of employees and branches has decreased only marginally. As a result, personnel costs (as a percent of operating income) have been stable for most banks.

Figure I-3.Austria: Provisions, Capital, Net Interest Margin, and Cost-Income Ratios: 1987-99

Sources: Oesterreichische Nationalbank; OECD; and staff estimates.

16. Although the inability to cut costs may to some extent reflect the need to invest in new technologies, and 1999 was affected by the need to prepare for Y2K that added to operating costs, this inability also reflects banks’ difficulties in cutting the number of branches and reducing personnel (Figure I-3 and Table I-3). Old contracts put a floor on the ability to reduce personnel costs: several banks agreed on employment conditions for bank employees similar to the conditions given to civil servants (e.g., in terms of protection against lay-offs). Moreover, political considerations may also be a factor against cutting costs in the case of the municipal savings banks and other government-owned banks.

Table I-3.Employment in Austrian banks: 1987-99(In thousands)
Joint Stock BanksSavings BanksRaiffeisen BanksOther BanksTotal
Source: Oesterreichische Nationalbank.
Source: Oesterreichische Nationalbank.

17. How well do Austrian banks fare in an international comparison? Compared to other continental European banks, Austrian banks may only be marginally less profitable, but they are definitely less profitable than U.S. and U.K. banks (Figures I-4 to I-6). Similarly, Austrian banks do not seem out of line with other banks in terms of cost-income ratios, although the branch network is denser than in Germany and Switzerland (Figure I-7). The only area where the Austrian banks seem clearly different from banks in the larger countries is the narrow interest margin; although, even here, Austrian banks are in line with banks in smaller European countries such as Belgium, the Netherlands, and Switzerland.

Figure I-4.Austria: Comparison of International Profitability, 1987-1999

Sources: OECD; and staff estimates.

Figure I-5.Austria: International Comparison of Interest Margins and Cost Efficiency, 1987-1999

Sources: OECD; and staff estimates.

Figure I-6.Austria: Cost Efficiency and Revenue Structure: 1979-1998

Sources: OECD; and staff estimates.

18. Particular caution should be exercised when interpreting the above figures involving return on assets and equity: the rate of return on equity may have been negatively affected in Austria by the increase in capital and reserves as the two largest banks changed their financial reporting from the national standard to the International Accounting Standard11 (IAS); similarly, the sharp fall in the return on assets has been affected by structural changes such as the acquisition of Creditanstalt by Bank Austria, which resulted in a sharp increase in total banking sector assets, reflecting a similar increase in interbank holdings.12 Moreover, in the case of the larger banks, the increased competitive pressure has been compensated, or in some cases, even more than compensated by earnings from their foreign operations, in particular in the CEECs. Thus, consolidated banking group data show a significantly more upbeat picture than the one presented above.

Figure I-7.Austria: Branch Density in Austria, Germany, and Switzerland

(Population per branch; in thousands)

Source: Oesterreichische Nationalbank.

D. Opportunities in Eastern Europe

19. Confronted with increased competitive pressures in the domestic market, the larger Austrian banks have been looking for opportunities abroad. Although large Austrian banks have subsidiaries in most continents, the largest foreign venture of Austrian banks is clearly their expansion into the CEECs (Table I-4). The most important reason for this expansion lies with Vienna’s remarkable location virtually in the middle of the CEECs (except Poland), just 3-4 hours by car from Budapest and Prague. In addition, extensive family ties and resulting multilingualism of employees are also important assets for the Austrian banks. Harder to quantify are the possible effects of a common history on the administrative and legal culture, but they are also likely to have contributed to the ease with which the Austrian banks were able to build up their presence in the CEECs.

Table I-4.Austrian Banks’ Market Shares in the CEECs(In billions of schillings; first half of 1999)
Total Bank AssetsAssets Owned by Austrian BanksMarket Share (percent)
Slovak Republic254.325.710.1
Czech Republic959.039.24.1
Source: Österreichische Nationalbank.
Source: Österreichische Nationalbank.

20. The Austrian banks were early players in Central and Eastern Europe. Benefiting from the numerous industrial joint ventures between Austria and the CEECs even before the demise of communism, Austrian banks already had a significant business franchise in these countries in the early 1990s. In most cases, the Austrian banks did not purchase any larger existing banks, preferring instead to acquire market share by internal growth. In particular, the Bank Austria Group has benefited from such internal growth; by end-1998 it had become the second largest foreign bank in the CEECs by asset size ($4.8 billion of assets, second to the Belgian KBC’s $6.2 billion).

21. This eastward expansion has been most marked for Austria’s three largest banking groups: Bank Austria, Erste, and RZB. Of these banking groups, the RZB group has the largest relative exposure to the CEECs (the asset share of the CEEC banks was 16.1 percent by end-1998; see Table I-5), with a particularly large presence in Hungary and Slovakia. In terms of its own assets, the Bank Austria Group appears to be less exposed than the other banking groups to the CEECs, but this does not take account of its importance as advisor and in investment banking. Of the three banking groups, Erste Bank Group has been the slowest to expand its business in the CEECs, but recently this has changed quite dramatically: the agreed purchase of a majority stake in the second largest Czech bank will increase the share of CEEC subsidiaries in Erste Group’s total assets from 3.1 percent to 15.7 percent.

Table I-5.Profitability of the Three Major Banking Groups(In percent)
ROA 1/ROE 2/Asset Share
Bank Austria Group0.40.20.411.14.512.3100.0
Of which
CEEC subsidiaries1.
Erste Bank Group 3/
Of which
CEEC subsidiaries 4/0.7-
RZB Group0.50.10.810.03.019.9100.0
Of which
CEEC subsidiaries3.02.82.728.219.316.1
Sources: Fitch IBCA; and Fund staff estimates.

Net income on average assets.

Net income on average equity (book value).

ROE were taken from annual accounts and are not necessarily consistent with other estimates.

A large loss reported for Erste Bank in 1998 reflects the cleanup of the balance sheet of Erste Bank Hungary (previously Mezöbank).

Sources: Fitch IBCA; and Fund staff estimates.

Net income on average assets.

Net income on average equity (book value).

ROE were taken from annual accounts and are not necessarily consistent with other estimates.

A large loss reported for Erste Bank in 1998 reflects the cleanup of the balance sheet of Erste Bank Hungary (previously Mezöbank).

22. The Austrian banking groups’ expansion into Eastern Europe has been highly profitable. Although the results in 1997 and 1998 were affected by the emerging market crisis, profitability in the groups’ CEEC subsidiaries—whether measured by net income on average assets (ROA) or net income on average equity (ROE)—was most of the time above their overall average profitability. Only in the cases of Erste Bank (in 1998) and Bank Austria (in 1997) was the profitability of the subsidiaries below the groups’ overall profitability.13 During the same two years, the asset-weighted average ROE of the three groups was 12½ percent in the groups’ CEEC subsidiaries, or about 4 percentage points above the group average.

23. The risk attached to the banks’ operations in the CEECs is, however, also large. Market ratings of the CEEC subsidiaries are significantly below the average EU ratings, but in some cases the ratings are also below their country ceilings. These ratings partly reflect the fact that despite ten years of mostly successful transition from central planning, the financial markets in the CEECs still do not fully match the standard in the EU area. The amount of “bad loans” outstanding in the CEECs banking sectors is still large (ranging from 27 percent of total loans in the Czech Republic to 6 percent in Hungary at end-1998) and the collection of collateral can be difficult: the EBRD 1999 Transition Report considered, for example, the Czech and Polish insolvency laws to be “barely adequate and with only basic effectiveness.”

Prudential and regulatory challenges

24. Since the large banking crisis in 1931 with the spectacular failure of Credit-Anstalt,14 Austria has been able to maintain a remarkably low level of bank failures. This probably reflects high franchise values and a stable macroeconomic and financial environment. Until recently interest rate cooperation was common practice between the major banks; a practice claimed by the EU commission to have been extended beyond its formal abolition in 1993, allowing interest margins and profitability to stay relatively high. Secondly, the absence of bankruptcies may reflect the preference for other less transparent methods of resolution, such as intrasector mergers or takeovers.

25. In the future this is likely to change. The competitive environment has already become much fiercer and non-Austrian players may be less willing to organize silent closures. Increased competition should reduce the cushion available for the banks to withstand economic shocks and bank failures are likely to be more frequent. A series of incidences, of no sysstemic importance, where smaller banks have called upon emergency liquidity assistance and/or public support or had to close down suggest that such a more fragile banking environment is indeed taking shape.15

26. This is not necessarily a negative development as it is, to a large extent, a byproduct of increased competition. Tougher competition is undoubtedly a welcome development for the consumer and the economy at large as it should lead to more efficient banks, higher productivity, and lower costs; it may even be argued that a higher level of small bank failures may be a sign of health of the financial sector since it is an effective way to weed out the less successful banks. But the task facing the supervisors and regulators may become harder to fulfill. The prudential issue is then to ensure that the costs of any failures are weighed against the benefits of keener competition and a better “exit mechanism.”

27. Some of this increased task can be dealt with by strengthening the quality of supervision, by improving the information received by the supervisors and by strengthening the internal risk models used in the banks. In the case of Austria, the banks’ operations in the CEECs warrant particular attention, despite their apparent ability to avoid large losses in these countries. Furthermore, a strengthening of supervisors’ operational independence from political authorities, including the ability to pay higher salaries for specialized staff, could usefully improve the effectiveness of the supervisors, in particular in dealing with larger banks with significant political clout.

28. Given that smaller banks may be subject to increased pressures in a more competitive environment, the procedures for dealing with problem banks may need to be overhauled. Lessons from banking troubles in other countries suggest that the supervisors should be given sufficient authority to bring about timely corrective action that enables the supervisors to tailor their response to the nature of the problems detected.16 The need for the accountability of the supervisors toward the public at large, the bank managers, and the bank creditors and owners should not prevent the supervisors from taking timely action. An introduction of rules for early corrective action, for example, in the case bank capital falls below a certain level, could be helpful in shielding the supervisors from legal action and political pressures and would provide a means to intervene in a transparent and effective manner.


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1Prepared by Ketil Hviding. This study updates and complements a previous study by Drees (1998).
2A forthcoming paper on “Euro Area Banking at the Crossroads” discusses changes in the euro area financial landscape and resulting policy challenges (Belaisch et al., forthcoming).
3A tax-bias against equity finance may have contributed to the small size of the equity market. This bias reflects the combination of full deductibility of interest payments on the corporate level (favors debt finance), the lack of effective taxation of capital gains (favors retained earnings), and “double taxation” of dividends. It has been calculated that the average tax wedge for equity financed investment equals 4.7 percentage points (compared to 0.1 percentage points in the case of debt finance and 1 percentage point in the case of retained earnings) when both corporate and personal taxes are taken into account (see Appendix II).
4The two largest Austrian banks are joint stock savings banks: according to Fitch-IBCA, as of December 1999, Bank Austria A.G. was largely controlled by a holding company with close links to the City of Vienna with 23 percent of equity; and Erste Bank was controlled by an “ownerless” holding company with about 44 percent of equity. Floating shares accounted for 55 and 32 percent, respectively. While the assets of Creditanstalt A.G. are still included in the commercial banking sector, Creditanstalt was taken over by Bank Austria in 1997. In late July 2000, agreement was reached at management level for the takeover of the Bank of Austria financial group (including Creditanstalt) by Hypovereinsbank, a German bank.
5Federal Law of January 24, 1979 on the Organization of the Saving Bank System.
6While the Raiffeisen banks are organized in a three-tier system, the industrial credit cooperatives have only two tiers.
7The subsidy is offered as a premium (prämie) of 3-8 percent of annual savings (with a ceiling of € 1,000 per individual in 1999) supplementing a saving plan. The prämie has to be repaid, if funds are withdrawn before the term of the savings plan.
8The first cross-sector merger, which created Bank Austria, was completed in 1991 between Zentralsparkasse, a savings bank, and Länderbank, a joint stock bank.
9In 1997, with a share of about 45 percent and 44 percent, respectively, the share of mutually-owned institutions was, however, even higher in Norway and Spain.
10The political authorities in various EU countries have expressed a preference for “national solutions” and have been involved in brokering domestic alternative mergers to mergers involving foreign partners (see Belaisch et al., forthcoming).
11While the national accounting standard allows the maintenance and increase in “hidden reserves,” the IAS requires that more market based asset prices be used in the accounts.
12Total assets increased since the two banks were still reported separately, but, due to reorganization linked to the acquisition, the cross-holding of liabilities increased, beefing up the balance sheet for both banks.
13A large loss reported for Erste Bank in 1998 reflects the cleanup of the balance sheet of Erste Bank Hungary (previously Mezöbank).
15In the last two years, in total four small banks have either been declared bankrupt or have needed public support: Rieger and Diskont Bank (bankruptcy in November 1998); Trigon Bank (emergency liquidity assistance from the OeNB, in October 1999), and Bank Burgenland (support from the provincial government, its main owner, in June 2000). By far the largest of these banks was Bank Burgenland with about 0.5 percent of total bank assets. Although increased risk-taking was present in these cases, criminal action was at the origin of troubles in three of these banks.

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