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Economic activity in Austria has been strongly hampered by the Covid-19 pandemic. Yet, due to large-scale government support measures, nonfinancial corporations’ profitability, as measured by gross operating surplus, deteriorated only slightly in 2020. While internal financing increased, external financing volumes decreased in 2020, reflecting negative equity financing and reduced debt financing. Bank loans remained a central tool for maintaining companies’ liquidity during the pandemic, facilitated by the Eurosystem’s comprehensive monetary policy instruments, payment moratoria and government guarantees for loans. Yet, after a spike in the first two months of the pandemic, the annual growth rate of loans to nonfinancial corporations moderated slightly. This reflected the declining use of Covid-19-related moratoria, the sizable liquidity buffers that had been built up in the first phase of the pandemic and muted corporate investments. In contrast, corporate bond issuance increased substantially in 2020. As a result of the rise in debt, the aggregate corporate sector’s consolidated debt-to-income ratio increased. However, this rise was accompanied by a strong buildup of liquid assets (cash and deposits). Moreover, insolvency numbers have fallen significantly since the start of the pandemic due to government support measures, but lagged effects are likely to materialize when these measures are eventually phased out. Overall, Austrian GDP declined by 6.6% in real terms in 2020.
Non-financial corporations’ external financing volumes plummeted in 2020, reflecting negative equity financing and reduced debt financing. According to preliminary financial accounts data, external financing amounted to €5.8 billion, a level two-thirds below the 2019 value. Bank loans remained a central tool for maintaining companies’ liquidity during the Covid-19 pandemic. Gross new loans to non-financial corporations were down 16.5% in 2020 against the year before. Covid-19 has seriously affected the debt sustainability of Austrian companies. In 2020, the aggregate corporate sector’s consolidated debt-to-income ratio surged by 14 percentage points to 325%. Non-financial corporations’ interest burden remained low in 2020. The ratio of interest payment obligations for (domestic) bank loans to gross operating surplus remained stable at 3% in 2020 (compared to 9% in 2008), despite the sizable increase in loan volumes since then.
In a demanding operating environment, Austrian banks managed to keep their operating profits stable. All in all, operating income was down by just 1%. In terms of costs, staff expenses declined by 3%, while other administrative expenses rose by 3%, so that operating costs also hardly changed year on year. Consequently, the cost-income ratio stood at an unchanged 67%, which points to a continuation of cost efficiency issues in the sector. Risk provisioning quadrupled in 2020 and led to a significant fall in profits. The consolidated NPL ratio of Austrian banks was 2% at the end of 2020. Together with the retention of profits, this helped increase Austrian banks’ CET1 ratio to 16.1%.
The Austrian banking system shows high levels of liquidity. LCR buffers are mostly made up of the top category of eligible high-quality liquid assets. The funding mix of Austrian banks continued to be concentrated on retail and corporate deposits.
At the national level, Covid-19 did not negatively affect the operational stability of the Austrian financial market infrastructures. ATM and POS transactions declined, however, in 2020.
Austrian banks’ total assets increased despite the pandemic, as structural transformation processes continued. The consolidated balance sheet of the Austrian banking sector increased by 10% to more than €1.1 trillion in 2020. Austrian banks also pressed ahead with transformation processes: the number of banks continued to go down, with the number of domestic branches declining at an even faster pace, especially among joint stock and private banks.
At the beginning of the Covid-19 pandemic, the OeNB advised the Austrian Financial Stability Board (FMSB) to decide against buffer releases to ensure that investors continue to have confidence in the Austrian banking sector and that funding costs for the Austrian banks and the real economy remain favorable. Austrian authorities repeatedly communicated to banks that buffers can and should be used to absorb losses and maintain lending during the pandemic.
Contributor: Bernhard Freudenthaler email@example.com