OeNB reliably fulfills its core tasks in 2020; operating profit affected by COVID-19 pandemic

The Oesterreichische Nationalbank (OeNB) presents its financial statements and Annual Report 2020

“This past year, the COVID-19 pandemic has changed our lives – in some aspects even drastically, as it triggered severe restrictions on social and economic activity. Still, I am convinced that, eventually, we are going to leave the pandemic behind – thanks to widespread testing, the quickening pace of vaccine rollout and targeted monetary and economic policy measures,” Robert Holzmann, Governor of the Oesterreichische Nationalbank (OeNB), said today during the presentation of the OeNB’s financial statements and Annual Report 2020.

The economic fallout of the pandemic in Austria has taken on proportions unprecedented since World War II, with the recession triggered by the financial crisis in 2009 paling in comparison. In 2020, GDP growth contracted by almost 7% in Austria, and unemployment rose to record levels. Massive support measures temporarily helped companies stay liquid and people keep their jobs. At the same time, these fiscal and economic policy measures have been weighing heavily on Austria’s budget and have driven up government debt.

“There is, however, reason for hope that the most serious consequences are already behind us,” Governor Holzmann continued on a positive note. At around +2%, economic growth in Austria is expected to be still modest in 2021, but it will clearly be back in positive territory. Austria’s lockdown in early 2021 and continued regional shutdowns of some sectors, such as tourism, will keep Austria’s output gap from closing more swiftly also this year.

How do monetary policy and the OeNB contribute to fighting the pandemic?

To counter financial market distortions and mitigate the economic downturn, the Governing Council of the European Central Bank (ECB) in 2020 promptly decided to expand the Eurosystem’s asset purchases and introduced a pandemic emergency purchase programme (PEPP), amongst other measures. Monetary policy thus proved to be a decisive stabilizing factor. Under the PEPP, the Eurosystem is able to conduct asset purchases, between March 2020 and March 2022, with a total envelope of EUR 1,850 billion.

“Not surprisingly, these monetary policy measures, while providing much-needed support for the economy, also weighed on the OeNB’s balance sheet and profit and loss account for 2020. The OeNB’s operating profit went down considerably against 2019, for instance. At the same time, the general government’s interest expenditure declined strongly as a result of the nonstandard monetary policy measures that have been in place since 2012 and the ECB’s low interest rate policy. In fact, the general government’s interest expenditure would be EUR 7 billion higher in 2021 than it is, had interest rate assumptions of May 2012 come true,” Governor Holzmann added.

“The temporary easing of supervisory requirements and the measures the federal government had taken to cushion the impact of the COVID-19 pandemic helped Austrian banks keep the real economy well supplied with loans to cover liquidity needs – particularly during the first critical months of 2020,” OeNB Vice Governor Gottfried Haber explained. Even under the challenging conditions prevailing in 2020, the Austrian banking sector fulfilled its role as an effective financial intermediary, proving both its resilience and its ability to help ease the tight economic situation. Support measures such as short-time work, loan guarantees, moratoria and deferrals of tax payments and of social security contributions helped reduce Austria’s insolvency ratio to 0.5% in the reporting year (2019: 0.9%). According to the OeNB’s corporate insolvency model, without the support measures, the insolvency ratio would have been likely to reach 4.0%.

“Apart from helping stabilize the Austrian economy and financial market, the OeNB successfully ensured the provision of its critical infrastructures in cash logistics and payment services. And we also reliably fulfilled our tasks in all other core business areas in 2020 – even though at times, close to 90% of our staff were working remotely,” Governor Holzmann reported. Thanks to the OeNB’s robust IT infrastructure and state-of-the-art digital technologies, OeNB employees were able to perform their tasks from home almost without restrictions and stay safe at the same time.

OeNB Executive Director Eduard Schock pointed out that “while the OeNB faced peaks in cash demand in particular during the first lockdown in March 2020, we continued without fail to supply both consumers and the economy with euro cash. Our success rested on an in-house COVID-19 emergency plan and on flexible working hours in those business areas that handle cash withdrawals and lodgments. The OeNB thus guaranteed that secure cash continued to fulfill its key role in the Austrian payment cycle.”

OeNB operating profit in 2020 declines to EUR 10 million

“The OeNB’s balance sheet and profit and loss account clearly reflect the implementation of the monetary policy measures which the Governing Council of the ECB had adopted in response to the COVID-19 pandemic,” OeNB Executive Director Thomas Steiner explained when presenting details on the OeNB’s balance sheet and profit and loss account.

At EUR 228 billion, total assets reached a historic high in 2020, up by as much as EUR 74 billion against 2019. The rise in assets was above all attributable to targeted longer-term refinancing operations (TLTROs, in particular TLTRO III operations) and the monetary policy asset purchase programs. Monetary policy operations accounted for no less than 66% of assets at year-end 2020, totaling EUR 152 billion (2019: 50% or EUR 77 billion). On the liability side, current account balances of credit institutions subject to minimum reserve requirements went up significantly, reaching EUR 101 billion (2019: EUR 36 billion).

Net interest income declined to EUR 374 million in 2020, almost halving against 2019 (EUR 681 million). On the one hand, a substantial EUR 217 million contribution to interest income resulted from higher current account balances of credit institutions subject to minimum reserve requirements, given negative interest on excess minimum reserves, and from the deposit facility. On the other hand, interest expense increased sharply as a result of the TLTROs (in particular the TLTRO III program). Moreover, EUR 297 million were used from the risk provision to offset in full the write-downs on foreign currency. In turn, the OeNB allocated EUR 225 million to strengthen the risk provision.

As Executive Director Steiner elaborated, “All these factors caused the OeNB’s operating profit for 2020 to decline to EUR 10 million. The central government’s share of profit came to EUR 8 million in 2020. Moreover, by resolution of today’s General Meeting, the OeNB will pay a dividend of EUR 600,000 to the central government out of its 2020 profit for the year of EUR 878,000.”

OeNB activities in 2020 beyond pandemic response

In 2020, the ECB and the euro area national central banks (NCBs) also started to review the Eurosystem’s monetary policy strategy. Their efforts have been focused on the definition of price stability as well as on incentives and instruments that may serve to achieve price stability. Playing a leading role in the review, the euro area NCBs, just like the ECB, also collected input from interest groups and civil society organizations. During its “The OeNB listens” event on October 30, 2020, the OeNB reached out to numerous stakeholders in Austria to discuss their views on the monetary policy strategy review. The OeNB aims to continue engaging in an open and direct dialogue with the Austrian public.

Teaming up with PSA Payment Services Austria GmbH, the OeNB laid the foundation, in 2020, for modernizing and future-proofing Austria’s infrastructure for settling retail payments. In this context, the OeNB also established another subsidiary: OeNPAY Financial Innovation HUB GmbH.

In 2020, the OeNB adopted its strategy for 2020 to 2025. In addition to the OeNB’s core tasks of maintaining price stability, safeguarding financial stability, and ensuring safe and efficient cash supply and payment systems, the new strategy defines the following key priorities: advancing financial innovations, improving financial literacy in Austria, promoting digital transformation and modernizing the OeNB as an enterprise.

At the end of the press conference, Governor Holzmann thanked all members of staff, also on behalf of the OeNB’s General Council and Governing Board, for their excellent cooperation and outstanding commitment and the important contribution they have made so far to contain the economic impact of the pandemic.