In 2011, the Oesterreichische Nationalbank (OeNB) made an operating profit of EUR 249 million against a background of high market uncertainty (2010: EUR 291 million). “The OeNB has performed well overall and has even been able to slightly improve its operating income compared to the preceding business year,” OeNB President Claus J. Raidl stated after the General Meeting of the OeNB. “However, as risk has risen markedly, we have transferred an additional EUR 400 million to our risk provisions. For this reason, the OeNB’s operating profit was lower in 2011 than in 2010,” explained OeNB Governor Ewald Nowotny. “For a central bank, making large profits is not a primary business task. Under the Treaty on European Union and the Nationalbank Act, the OeNB’s primary obligation is to maintain price stability and to safeguard financial stability.”
Austria’s central government will receive EUR 231 million (2010: EUR 269 million) of total operating profit, with EUR 62.3 million representing corporate income tax and EUR 168.3 million (90% of the OeNB’s operating profit) representing the government’s profit share under the Nationalbank Act.
The OeNB’s profit for the year 2011 thus amounts to EUR 18.7 million. By resolution of the General Meeting, EUR 1.2 million of this amount will be appropriated to pay a 10% dividend on the OeNB’s capital stock of EUR 12 million to the Republic of Austria, the holder of 100% of the OeNB’s shares, and EUR 9 million will be allocated to the OeNB Anniversary Fund for the Promotion of Scientific Research and Teaching. The remaining EUR 8.5 million will be transferred to the profit-smoothing reserve.
Net interest income, traditionally central banks’ most important income component, augmented by 17% to EUR 842 million. Thanks to its prudent reserve management, among other things, the OeNB’s operations closed without writedowns on foreign currency reserves and only marginal writedowns on securities despite high uncertainty prevailing in the financial market. Comprehensive, flexible liquidity management measures and the reduction of key interest rates to historical lows contributed decisively during the crisis to stabilizing the financial markets, maintaining price stability and containing negative effects on the real economy.
Within the framework of these stability policy activities, the OeNB, as part of the Eurosystem, assumes risks in the interest of the entire economy. “In addition to the traditional risks to central banks’ operations – foreign currency and interest rate risks – credit risks have also risen. These risks result above all from taking part in the single monetary policy as well as from the increased commitments of the International Monetary Fund,” emphasized Governor Nowotny.
In 2011, the OeNB’s staff costs ran to EUR 125 million, slightly higher than in 2010. Because the crisis persisted and additional new tasks fell to the OeNB when the banking supervision functions were integrated in 2007, average full-time equivalent staff in core business areas increased and then remained stable from 2009 (2007: 918; 2009: 984, 2011: 986). Expenditure on goods and services rose minimally to EUR 79 million in 2011 as a result of the introduction of a domestic payment clearing infrastructure, but from a medium-term perspective, this item fluctuates very little.
Banking supervision activities accounted for direct costs of roughly EUR 19 million in 2011, which is a rise by 26% from 2010. In 2011, the Financial Market Authority for the first time refunded the increased maximum amount of EUR 8 million (previously: EUR 4 million) for these supervisory services under the related amendment to the Nationalbank Act.
Additional Reforms Implemented
In the reporting year, further important steps of the OeNB’s in-house reform program were completed: By implementing new conditions of service, the OeNB succeeded in establishing a remuneration system that is competitive and in line with market standards. In cooperation with the Staff Council, OeNB management prepared to take over 70 leased employees under the new conditions of service, a step that was implemented on May 1, 2012. As Governor Nowotny noted, “While this step raises staff levels in the OeNB, the resulting rise in staff costs in the year 2012 will be more than offset by a corresponding reduction of administrative expenses, the item that had included costs for leased employees prior to the new regime.”
As an immediate reaction to grave misconduct of individual staff members at subsidiary level, new compliance rules and efficient control mechanisms are being introduced to sustainably safeguard the reputation of the central bank and to ensure trust in the OeNB. As OeNB President Raidl announced, “We involved external experts to elaborate compliance rules in line with international standards; these now apply to the OeNB itself and to the OeNB’s subsidiaries.” “As a particularly important measure,” added Governor Nowotny, “the OeNB has established a Compliance Office and has introduced stricter rules for donations, subsidies and sponsoring.”
Within the framework of an arbitration procedure, changes in social benefits (above all regarding OeNB-owned housing) could be agreed with the Staff Council out of court.
The Economy Begins to Revive, Inflation Abates Again
Looking at the economic situation, Austria’s economy performed well, recording a GDP growth rate of 3% in 2011, markedly above the euro area average. The 4% unemployment rate was the lowest in the entire EU. The current account again posted a surplus. In 2012, growth is projected to be somewhat below 1% as a result of the weaker external macroeconomic environment and stepped-up consolidation measures (May 2012 European economic forecast of the European Commission: +0.8%). From today’s perspective, though, growth is anticipated to quicken to roughly 1¾% in 2013 in tandem with the expected recovery of world economic activity.
Rising energy, food and service costs boosted HICP inflation to 3.6% in Austria in 2011, above the euro area average and higher than the rate in Germany and Italy. “The picture will change substantially already in 2012,” Governor Nowotny pointed out. “Since the beginning of the year, inflationary pressure has been abating, and in April 2012, the HICP inflation rate came to 2.3%. Thus, it has again fallen below the euro area rate (+2.6%) and is roughly on a par with German inflation (2.2%). For the entire year 2012, the most recent forecasts assume a rate of a bit over 2% for Austria. Inflation is forecast to decline to roughly 2% in 2013, which should put Austria back on the price stability path.”
Further Reforms to Consolidate Public Finances in the Euro Area Are Imperative
The debt crisis still has a tight grip on Europe. The fragile condition of some euro area countries’ public finances resulted in considerable tensions in the financial markets and sharply rising sovereign bond yields in 2011. The yield spread between Austrian and German government bonds also widened. Standard & Poor’s rating agency downgraded Austria’s long-term debt rating to AA+, whereas Moody’s and Fitch kept the rating for Austria at AAA. The Austrian government passed a “debt brake” rule (setting binding upper limits for the level that the structural deficit may reach annually) for Austria in fall 2011; together with a comprehensive consolidation package enabling savings of some EUR 26 billion by 2016 and a lower than expected Austrian public deficit of 2.6% of GDP in 2011, it contributed to a renewed drop in the yield on ten-year Austrian government bonds to below 3% in the first months of 2012. In May 2012, yields even sank to a new low of some 2½%.
In the medium term, however, further decisive joint efforts will be needed to shore up public finances throughout the euro area. Important steps have already been taken with the fiscal policy and financial market policy reforms that have been introduced and partly implemented at the EU level. The related ongoing reform of the Economic and Monetary Union (EMU) architecture together with a sustainable policy to promote growth will help ensure that the euro remains a stable currency. The facts analyzed on the occasion of the tenth anniversary of the introduction of euro banknotes and coins confirm that the euro has established itself as a stable international currency and as the secure and reliable means of payment for over 330 million European citizens.
Extensive measures taken to overcome the crisis again confronted the different business areas in the OeNB – above all those in charge of implementing monetary policy and of managing reserve assets – with extraordinary challenges. The OeNB’s financial stability activities in the review year focused on participating in the stabilization of individual banks, conducting bank stress tests and strengthening the sustainability of the business models of Austrian banks.
The OeNB faces major tasks: First and foremost, it must maintain price stability and safeguard financial stability by means of ongoing monetary policy measures. Second, the OeNB is charged with implementing national regulations and actively contributing to the development of international draft regulations. Moreover, the OeNB supports large Austrian banks in enhancing their capital levels and in restructuring with the aim of ensuring a high degree of financial stability. The OeNB’s efforts in managing reserve assets are directed at further strengthening its profitability by further optimizing risk-return management in a difficult environment.
All these activities place high demands on the OeNB’s staff and required extraordinary efforts during the review year, thanks to which the OeNB has been able to remain an anchor of stability in times of heightened uncertainty. With its outstanding expertise and commitment, the OeNB staff has made a valuable and indispensable contribution to effective crisis management both in Austria and the euro area.
The OeNB’s Annual Report 2011 contains details about the Financial Statements for 2011 and about the activities of the OeNB in 2011. As the OeNB’s Sustainability Report, the Annual Report also contains the Intellectual Capital Report 2011 and the Environmental Statement 2011.