The OeNB reliably fulfilled its core tasks in 2018

Euro approval ratings peak at 76%

“In a generally favorable economic environment, the OeNB once again fulfilled its legal mandate in a reliable manner and to the highest standard, thus contributing substantially to maintaining price stability and financial stability in Austria,” OeNB Governor Ewald Nowotny summed up the OeNB’s 2018 performance at the press conference held on the occasion of the presentation of the Annual Report 2018 of the Oesterreichische Nationalbank (OeNB). “In the 20 years of its existence, the euro has established itself as a stable currency. At the end of 2018, 76% of Austrians said they approved of the common currency. This is a rate we have not seen since the peak approval rates recorded in 2007.”

Regarding the milestones reached in 2018, Governor Nowotny pointed out that “the repatriation of gold reserves to Austria was completed in 2018, ahead of schedule. Now, 140 tons of gold reserves are stored in Austria, 90 tons of which in the OeNB’s own vaults and 50 tons in the vaults of one of our subsidiaries, MÜNZE Österreich AG.”

Governor Nowotny also highlighted that “economic growth in Austria remained robust in 2018 and was again higher than in the euro area, which is also reflected in the results achieved by Austrian banks in 2018. Over the past few years, financial stability in Austria has been strengthened considerably through the macroprudential measures and the microprudential supervisory measures initiated by the OeNB and through banks’ efforts in restructuring and adapting their business models. Nonetheless, raising profitability, reaching higher capital adequacy and mastering digitalization continue to be major challenges.”

“In 2018, the OeNB’s investment strategy relied on broad diversification and risk-reduction measures, which helped stabilize the OeNB’s earnings under difficult market conditions,” Governor Nowotny added. At EUR 283 million, the OeNB’s 2018 operating profit fell EUR 3 million short of the 2017 result. Of the total share of EUR 240 million allocated to the Republic of Austria, the central government’s 90% share of profit amounts to EUR 184 million and corporate income tax equals EUR 56 million. Since 2008, the central government’s share of profit and the OeNB’s corporate income tax payments have added up to EUR 3.1 billion. In line with the National Foundation Act, the OeNB will use EUR 66.67 million from the central government’s 2018 share of profit to top up the funding budget of the National Foundation for Research, Technology and Development (FTE-Nationalstiftung).

In 2018, the OeNB’s total assets increased by around EUR 6 billion, or 4.3%, as a result of the monetary policy asset purchase program, which was discontinued at end-2018. At EUR 150 billion, the OeNB’s total assets reached a new record high in the reporting year.
 

(Real) costs have remained flat since 2008
The OeNB’s administrative expenses amounted to EUR 81 million in 2018 (2017: EUR 81 million); nominally, this figure has remained almost unchanged since 2008. Adjusted for inflation, administrative expenses in real terms have decreased by around 18% over the last ten years.

Staff costs went up by 3.5% in 2018, to EUR 152 million (2017: EUR 147 million). In real terms, staff costs have grown by no more than around 8% since 2008, although staff numbers increased as the OeNB took on new tasks in banking supervision.

Governor Nowotny traced this flat development of costs and expenses back to the OeNB’s responsible and sustainable governance. More efficient processes, adjustments in the existing employment and pension arrangements, ongoing reforms and the effective adjustment of staff benefits all had a positive impact on cost dynamics. Sustainable savings are related in particular to the internal optimization and reorganization project OPAL: For the period from 2015 to 2020, accumulated savings will be around EUR 90 million; as of 2020, savings will come to more than EUR 25 million per year.

New challenges for OeNB business areas
Recent forecasts point to a slowdown in global economic activity in 2019, with trade tensions, Brexit and vulnerabilities in a number of emerging market and advanced economies weighing on the growth outlook. “Euro area growth will decelerate markedly as well,” Nowotny explained. “From the current perspective, economic growth in Austria will slow to around 1.5% in both 2019 and 2020.”

Against this gloomy economic outlook and the danger of inflation not approaching the euro area inflation target any further, the Governing Council of the European Central Bank (ECB) decided on its future monetary policy stance in its meeting of March 7, 2019. Key interest rates are to remain at their present levels at least through the end of 2019. Moreover, a new series of quarterly targeted longer-term refinancing operations (TLTROs III) will be launched, starting in September 2019 and ending in March 2021, each with a maturity of two years.

The OeNB’s management of reserves and risks continues to be challenging amid low interest rates and volatile markets. TARGET Instant Payment Settlement (TIPS) – a market infrastructure developed by the Eurosystem – became operational in late 2018, and Austrian banks will start participating in TIPS step by step in 2019. According to the ECB’s Vision 2020 strategy, further projects are to be implemented in payment services and in business operations with banks. At the end of May 2019, the new EUR 100 and EUR 200 banknotes of the Europa series will enter into circulation. After April 26, 2019, the EUR 500 banknote will no longer be issued in Austria and Germany. All other euro area countries stopped issuance on January 26, 2019. The EUR 500 banknotes still in circulation will remain legal tender and can be exchanged for an unlimited period of time at all euro area NCBs. They may thus be used as a means of payment and a store of value also in the future.

In 2019, the OeNB will see a number of staff-related and organizational changes. The current Governing Board will be replaced gradually by new members between May and September 2019. Following a decision by the federal government, the OeNB’s banking supervisory tasks will be assigned to the Austrian Financial Market Authority (FMA). To ensure a smooth changeover, preparations for this complex joint project are in full swing at the FMA, the Austrian Federal Ministry of Finance and the OeNB. The OeNB will continue to be responsible for financial stability monitoring, i.e. macroprudential analysis. To this end, a competence center for financial market strategy and development will be established.

At the end of the press conference, Governor Nowotny, on behalf of the OeNB’s General Council and Governing Board, expressed their gratitude to the entire OeNB staff for their strong commitment and performance in 2018.