Austrian Credit Limitations ?

by Steven van Groningen on 24 November, 2011

Last Monday the Austrian banking supervisors, the FMA and the Austrian National Bank (OeNB) announced measures that may limit the possibility of subsidiaries of Austrian banks to continue to extend credit under certain circumstances. These measures came as a total surprise to all involved.

President Basescu has made strong statements about this at The Economist’s Bucharest Summit event this Thursday.  Afterwards I has the pleasure of commenting on this to the press immediately after. More on what President Basescu said can be found here. He makes his point very clear.

 What Is This All About

All we know is that the OeNB issued a one page press release, which can be found on their website (link here). The document states that the Austrian Financial Markets Authority (FMA) and the Austrian National Bank (OeNB) have “devised a set of measures to make the business models used by Austrian bank operating in Central, Easter and Southeastern Europe (CESEE) more sustainable. These measures will be published as prudential guidelines before the end of 2011.”

Further down it explains that “To promote the subsidiaries’ refinancing structure, credit growth will be in the future be conditional on the growth of sustainable local refinancing (compromising mainly local deposits, but also local issuance activity and supranational tuning, e.g. by the EBRD or the EIB). In the future, subsidiaries that are particularly exposed must ensure that he ratio of new loans to local refinancing (i.e. the loan-to deposit ratio including local refinancing) does not exceed 110%”

What Does This Mean ?

Although many things need to be clarified in the “prudential guidelines”, I feel there are a few things we can say without too much speculations. This is only my personal opinion and things might prove to work out differently later on.

How will the loan-to-deposit ratio be calculated?

In the document is already mentioned that besides local deposits also other “local” funding and lines from supranationals like EBRD and EIB will be included in the deposit number, which improves the ratio for banks that have those facilities. (We have them and we are not the only ones).

On what has to be included on the loan side I think it is reasonable to assume that international standards will be used (as opposed to Romanian accounting standards) and amounts will be net after provisions.

In conclusion this means that the ratio that will be used by the Austrian regulators will be much better that the standard loan-to deposit ratio. (To give you an idea, the bank I am running has already a ratio of about 80%, so way better than the limit, even without taking into account the elements mentioned above)

Which subsidiary banks will be affected ?

Only the ones that are “particularly exposed”. I read this as banks that rely very much on funding from their Austrian parent, maybe defined as having a loan-to-deposit (as described above) ratio exceeding 110%.

How will these banks be affected.

My speculation is that these banks will not  be asked to reduce there loan-to-deposit ratio to 110% before allowing to continue its credit activity because this would be a very harsh and unnecessary measure. What is more likely is that these banks will need to limit their credit activity for new loans to 110% of new deposits (as defined above). In other words, rather than a static number, the flow might become the limiting factor.

Very Little If Any At All

As mentioned above, this is my personal interpretation is and some of it is speculation. Still, I don’t expect any impact for our bank and would expect the impact for Romania to be very modest, if any at all. The Romanian press has already published ratios for the subsidiaries of Austrian banks in Romania (ZF article here). Based on this there is probably only one “particularly exposed” subsidiary of an Austrian bank in Romania.





{ 13 comments… read them below or add one }

Juan Huitz November 24, 2011 at 20:13

The EIU has you a bit above 80%, actually, even above the Austrian guideline, I assume that they would use IFRS or calculate net of provisions as well, but perhaps they just took the numer from the NBR. More questions that clarity at this point, but I would appreciate your view on why there is a discrepancy in this ratio for your bank.


SvG November 25, 2011 at 00:54

EIU has used the numbers published by RBI, these include, besides the results of the subsidiary, also loans that are originated in Romania but booked elsewhere in the group. The announcement of OeNB refers strictly to the activities of the subsidiaries.


Nelda January 2, 2012 at 05:28

Thanks for introcduing a little rationality into this debate.


Matei November 24, 2011 at 21:40

Hello Mr. van Gronigen! And thank you for your post. It’s reassuring to hear from someone in your position that the impact of all this should be modest.

I do have one small question though (not sure if this blog is the best place for it, but I thought I’d try anyway): I took a quick look at Raiffeisen Bank Intarnational’s Q3 financial report and couldn’t help but notice that the Loan/deposit ratio for the Romanian segment is at 117.2% in the report. Why is that figure so much higher than the one you mention (80%)? I’m mostly asking because I’ve been looking at the figures for other banks in Romania in their respective financial reports and found them quite high, but now I’m thinking that maybe I’m missing something =)


SvG November 25, 2011 at 00:40

Matei, the number of 117 % loan to deposit ratio that is mentioned in the RBI report includes loans that are originated in Romania, but booked elsewhere in the group, In other words the deposit are the deposits of the Romanian subsidiary but the loans also include Romanian loans that are not on the books of the subsidiary. This explains the difference. The announcement of the Austrian National Bank refers strictly to subsidiary banks. In our case the loan to deposit ratio is around 80 % on the subsidiary level. As mentioned, this excludes the funding received from the supra nationals that may be included according to the OeNB statement.


Matei November 26, 2011 at 00:06

Ah, I see, thank you for clarifying! But then, doesn’t limiting the measure to the books of the subsidiary kind of defeat the whole purpose? I would have assumed that the idea was to limit the overall exposure of Austrian banks to EE. But if that exposure can simply be moved to (or originated on) another entity’s books, then isn’t the measure a bit pointless? (well, I assume there is some regulation limiting the extent to which this can be done, but still).


SvG November 28, 2011 at 15:48

You are right that at first sight the measures seems to be easy to circumvent. I am sure the regulator sees this as well and it is therefor best to wait and see what the final guidelines will look like. I don’t expect a detailed rule based document but could be wrong. If it would be rule based and if what is booked outside on Romania needs to be taken into account as well, shouldn’t we than also take into account deposits booked abroad by Romanian residents ?


Calin November 24, 2011 at 23:36

So good having yr opinion stated here, rather than us trying to swim among speculation from the press.


buddywonca November 25, 2011 at 08:52

That’s why I like the banking system in Canada and US.
It is quiet for the average ears.
Romania made a big mistake, years ago, allowing foreign banks to buy and incorporate in their structure the local banks and without any precondition.
In Canada it is not allowed for a foreign bank to come and buy a local one.
The banking system is a national treasure and is yet protected. The operating rules are very strict and banks policies are not for average citizen’s ears.
By the way….In US and Canada banks operate openly, give you the flexibility to access your accounts digitally and make for you possible to transfer funds from one account to other. The maximum limit is 10,000 $.
I have in my account with a “big” bank in Romania a consistent amount and I like to transfer freely between my other accounts in US and/or Canada, as I like. I cannot do that and I don’t understand why. In North America I can transfer electronically in the 10,000 range, funds between my Canadian and US bank accounts. And the accounts belong to different banks. That mean to me freedom. Why not in Romania….?
Next summer I come to Romania for a visit and I intend to transfer my account to a bank who has liberal policies with regard to your own money.


Rupert Wolfe Murray November 25, 2011 at 19:25

A very useful article….


Luminita November 26, 2011 at 16:44

Discursul lui Base… : ca de obicei, ipocrit, stupid si agresiv! Era stiut faptul ca privatizarea bancilor de stat a fost o favoare acordata Austriei pentru a sustine aderarea Romaniei. Ce s-a intamplat ulterior? Sub obladuirea scumpului BNR si profitand de o legislatie permisiva si o justitie oarba, cele doua banci austriece de data asta, au facut ceea ce trebuia, adica p r o f i t ! Cand s-a ivit ocazia de a mai potoli avantul bancilor (prin Ordonanta 50 si o ardoare de control a ANPC-ului), guvernul Base-Boc ce a facut? A adoptat legea in forma dorita de banci, la presiunea FMI-ului. Decizia autoritatilor austriece de a limita finantarile catre subsidiarele din Estul salbatic mi se pare benefica, dar si nedreapta. Benefic pentru ca va bloca stimularea unui consum idiot in dauna acordarii de credite de investitii pt IMM-uri. Benefic pt ca va obliga bancile sa atraga in depozite economiile populatiei si abia atunci sa aiba curaj si sa acorde credite cu buletinul. Abia acum sa vedem de la ce valoare a dobanzii in sus vom obtine noi deponentii o dobanda real pozitiva? Daca bancile nu vor mari dobanzile, romanii isi vor retrage masiv banii. Nu uitati sa luati in calcul fiscalitatea excesiva din RO! Nedrept mi se pare insa ca Austria baga Romania in aceeasi oala cu Ungaria, apropo de masurile dure si populiste ale guvernului maghiar impotriva ERSTE. Probabil s-au gandit ca maghiarii din RO se afla in coalitia de la putere, iar romanii au o predilectie sporita de a importa exemplele proaste! :)


porumbaceanu ana maria January 9, 2012 at 16:08

Hello Mr. van Groningen,
I don not know if it is really you here on Facebook but I would like to tell you my story with the bank you represent…….


SvG January 11, 2012 at 16:21

THank you for your message, as mentioned on my Contact page, I ask visitors not to use my personal blog for matters that are between them and the bank only. I have therefor removed the personal part of your comment and forwarded this to the relevant people in the bank. Thank you for sharing this with me, we appreciate feedback, but I preferably not though this channel. THank you.


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