Austria’s nationalization of three lenders rescued from the brink of collapse is helping repair the country’s overcrowded banking structure, the central bank’s chief bank supervisor said.
“The nationalization is a regulatory cleanup of the structure,” Andreas Ittner, the central bank’s director responsible for bank supervision, told reporters in Vienna today, citing the nationalized banks’ efforts to sell and wind down assets. “Something is happening there -- a massive reduction is in progress.”
Austria agreed to partially nationalize Oesterreichische Volksbanken AG (VBPS) in February, more than three years after taking over Volksbanken’s Kommunalkredit unit in the wake of Lehman Brothers Holding Inc.’s collapse in 2008 and two years after the bailout of Hypo Alpe-Adria-Bank International AG in 2009. Ittner and his fellow regulators at the FMA watchdog have told all three banks to reduce assets and repair balance sheets.
The Alpine republic has more banks, branches and bank employees per capita than most euro-area countries, leading to more competition, higher costs and lower margins in the domestic business, according to the central bank. The last major merger between two Austrian banks was Bawag PSK Bank AG’s purchase of postal savings bank PSK, which was completed 2005. Most of the country’s big banks have more profitable operations in eastern Europe, which bolster modest earnings at home.
There were three options for Volksbanken, which posted a 959 million-euro ($1.2 billion) loss last year, Ittner said. An insolvency would have cost creditors, other banks and the government as much as 40 billion euros, he said. A sale to a foreign investor wasn’t possible in the current market. Austria partially nationalizing Volksbanken was the only way, he said.
Municipal lender Kommunalkredit, which spun off a “bad bank” to warehouse assets that are risky and unrelated to the main business, has sold or wound down 9.4 billion euros of assets since it was nationalized. Hypo Alpe’s assets shrunk by 8.2 billion euros since the end of 2008. Volksbanken sold its real estate unit and most of its eastern European business before it was nationalized, under pressure from regulators, Ittner said.
Austria is working to pass an insolvency law this year and may not be able to wait for the European Union to come up with a plan, Ittner said. The central bank and the FMA have demanded lawmakers give them options to intervene in bank management at an earlier stage. They can only do so now when a potential insolvency puts depositors and creditors at risk, he said.
Austria’s banking industry is among the biggest threats to its top debt grade, Fitch Ratings Ltd. reiterated in a separate statement today, affirming the country’s AAA rating. Standard & Poor’s cut the rating by one level to AA+ in January.
Ittner also said the situation in Spain was of no particular concern for Austrian banks. The country’s lenders have holdings of about 3 billion euros in Spain and less than 1 billion euros in Portugal, he said.
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