Bloomberg News

Austria’s Regulation Changes ‘Not Relevant’ for Czech Units

November 24, 2011

(Updates with central bank quote in third paragraph, more details starting in fourth.)

Nov. 24 (Bloomberg) -- Austrian bank regulations curbing the lending of units in central and eastern Europe are “not relevant” for those institutions incorporated in the Czech Republic, the Czech central bank said today.

The Czech National Bank wasn’t consulted on the changes for lending operations of Austrian banks in emerging Europe, central bank spokesman Marek Petrus said in a conference call in Prague.

“The announcement of Austria’s regulatory authorities isn’t relevant for subsidiaries of Austrian banks in the Czech Republic,” Petrus said. “It’s still a valid fact that all banks incorporated in the Czech Republic are under the supervision of the Czech National Bank.”

Erste Group Bank AG, Raiffeisen Bank International AG and UniCredit SpA’s Bank Austria AG will be prevented from loaning significantly more than they raise in local deposits in countries such as Hungary, Romania and Ukraine starting next year, the Austrian central bank said in a statement yesterday. That would limit their ability to fund credit growth with loans from the parent company.

Basel Accelerated

Austria’s central bank and financial regulator FMA are restricting new loan business to 1.1 times the deposits and wholesale funding that banks’ local units are able to raise on their own. They are also requiring the three banks to hold as much as 10 percent of capital from 2016, 3 percentage points more than required under rules from the Basel Committee on Banking Supervision.

Austrian banks have lent $266 billion to borrowers in the formerly communist parts of Europe, the most of all countries reporting to the Bank for International Settlements and equivalent to about 70 percent of Austria’s gross domestic product. Those numbers don’t include the investments of Vienna- based Bank Austria, which are attributed to Italy.

Concern the Austrian government may have to bail out lenders because of eastern European losses have weighed on the country’s AAA sovereign-credit rating and raised its refinancing costs last week. The extra interest the country has to pay investors to hold its 10-year bonds instead of Germany’s dropped to 148 basis points yesterday, from a euro-era high of 191 basis points last week.

--Editors: Alan Crosby, Paul Abelsky

To contact the reporter on this story: Peter Laca in Prague at placa@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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