VIENNA--The outlook for Austria's banking industry will remain
negative over the next 12 to 18 months, Moody's Investors Service
said Friday, as subdued domestic growth and economic weakness in
Central and Eastern Europe weigh on the sector.
In its Austrian Banking System Outlook report, Moody's said some
of the Alpine country's largest banks faced a number of challenges
in its Central and Eastern Europe operations.
"Over the outlook period, challenges are greatest for the three
largest Austrian banks [Erste Group Bank AG (EBS.VI), Raiffeisen
Bank International AG (RBI.VI) and UniCredit Bank Austria
AG]--comprising 48% of system consolidated assets--because of their
exposure to a possible renewed downturn in several CEE countries'
said Moody's.
Economic weakness in Hungary, Bulgaria, Romania and Slovenia
could lead to continued asset quality deterioration, Moody's said,
although "credit performance has been much more stable in countries
like the Czech Republic, Russia, Slovak Republic, and Turkey whose
economies have been less pressured to date."
A further risk is the ability of Austrian banks to overcome any
negative shocks should the financial crisis spread to the CEE
region. While many Austrian bank's meet the European Banking
Authority's capitalization requirements, Moody's said Austrian
banks are under-capitalised relative to their risk profiles and
that the banks' capital buffers provide limited potential to absorb
losses in a stressed economic environment.
It added that historical loan performance has been better than
their loss estimates assume, but Moody's believes there is an
elevated risk of loan losses due to deteriorating asset quality.
Several Austrian banks have sustained sizeable losses in markets
like Hungary.
Moody's also pointed to the risks Austrian banks face due to the
high percentage of Austrian borrowers who have taken out variable
rate and foreign currency-denominated loans, with the latter
accounting for around 25% of domestic household loans at the end of
September 2012.
"Credit risk in these loans not only arises from currency
movements but also from asset-price fluctuations, as repayment of
around 70% of these loans is facilitated through lump-sum payments
at loan maturity," Moody's said.
Moody's did point to several mitigating factors such as
Austria's relatively benign domestic economic environment and the
perception that the banks are a safe haven during times of economic
stress. In addition, it pointed to low loan-to-deposit ratios
compared with other European banking systems.
Moody's has rated the Austrian banking outlook as negative since
2009.
Write to Nicole Lundeen at nicole.lundeen@dowjones.com
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