OeNB operating profit for 2021 reflects ongoing COVID-19 pandemic; economic recovery overshadowed by rising inflation and war in Ukraine

The Oesterreichische Nationalbank (OeNB) presents its financial statements and Annual Report 2021

“In 2021, social and economic life in Austria continued to be overshadowed by the COVID-19 pandemic. As comprehensive monetary policy and government support for the economy was sustained and as vaccines became available, the economic recovery gained a firmer footing. Having grown by a robust 4.5% in 2021, Austria’s economy was initially also forecast to fare well in 2022. Yet, following the invasion of Ukraine by the Russian Federation on February 24, 2022, we have had to revise these expectations. Looking ahead, the economy will be heavily driven by this war and its impact, which has been a game changer,” Robert Holzmann, Governor of the Oesterreichische Nationalbank (OeNB), said today during the presentation of the OeNB’s financial statements and Annual Report 2021.

“The OeNB stands by the Ukrainian people,” Governor Holzmann continued. There has been a huge outpouring of support from Austria, as in crisis situations in the past. The OeNB and OeNB staff members, too, have been donating to domestic humanitarian organizations to help them make a difference. To the best of its ability, the OeNB will partner with Austrian education providers to lend proactive academic and cultural support to Ukrainian students and faculty members. As an integral part of the Eurosystem, the OeNB moreover participates in all the measures adopted by the Governing Council of the European Central Bank (ECB) in order to secure the provision of ample liquidity, implement the agreed sanctions and continue to safeguard price stability and the stability of the financial system.

War in Ukraine causes output growth to decelerate and inflation to rise in Austria
The latest interim update of the OeNB’s economic outlook from March 2022 indicates that the fallout from the war will inhibit economic growth and add to inflation as measured by the Harmonised Index of Consumer Prices (HICP). On the assumption of a timely end of warfare, we now expect the Austrian economy to grow by 3.5% in 2022 in real terms amid a 5.3% uptick of inflation. Compared with the growth projections made in December 2021, we arrive at a downward revision of 0.8 percentage points for GDP growth and an upward revision of 2.1 percentage points for inflation. While the impact of the war in Ukraine accounts for roughly half of the downward revision of output growth, its impact on the upward revision of inflation is about a quarter. For 2023 and 2024, we forecast output growth to decline to 2.2% and 2.0%, and inflation to ease to 2.9% and 2.3%, respectively. These figures are the results of our forecast update. Alternative scenarios – assuming protracted and escalating hostilities and enlarged sanctions and reflecting a reduction of gas supplies from Russia – yield much higher output and inflation effects.

Austria’s banking sector is resilient, but faced with mounting challenges
“As a result of the forward-looking microprudential and macroprudential measures adopted by supervisors since 2008 and thanks to banks’ efforts to make their business models more sustainable since then, Austria’s financial system has become more resilient,” added OeNB Vice Governor Gottfried Haber. Thus, the banking sector has been an anchor of stability during the COVID-19 pandemic, ensuring the sustained provision of liquidity to Austrian businesses. Since 2008, Austrian banks have nearly doubled their capital ratios to close to 16%, and their liquidity buffers are high as well. The portfolios of Austrian banks that are active in Central, Eastern and Southeastern Europe (CESEE) are diversified by region. The CESEE subsidiaries of these banks have become less dependent on parent bank funding and reduced their risks mainly by broadening their local funding base.

From the current perspective, financial stability is not under threat from the risks that have materialized with Russia’s invasion of Ukraine.

Furthermore, Vice Governor Haber highlighted the new and pioneering climate stress test carried out by the OeNB for Austria’s banking sector. We know from this stress test that the transition risks arising, above all, from carbon pricing appear manageable for Austrian banks.

In line with recommendations from international institutions, the OeNB contributed material input in 2021 for binding borrower-based measures aimed at mitigating the risk arising from residential mortgage loans in Austria.

Moreover, being the single biggest provider of public finance statistics for Austria, we started to develop a new data strategy for the statistics we generate. The underlying goal is to enhance user access to the extensive and rapidly growing volumes of data. Last but not least, we overhauled the OeNB’s external statistics reporting procedures and contributed to the launch of a project in the European System of Central Banks (ESCB) aimed at easing the reporting burden for banks along the lines of the integrated reporting framework developed and implemented by the OeNB.

Monetary policy subject to strategic adjustments
In light of the recent price growth in 2021, the Eurosystem is due to discontinue as planned net asset purchases under its pandemic emergency purchase programme (PEPP) at the end of March 2022. Until June 2022, the pace of purchases under the ongoing expanded asset purchase programme (APP) will also be reduced step by step. “Beyond that, the ECB, together with the national central banks of the Eurosystem, completed the review of its monetary policy strategy, which had been in effect for the past 18 years. Specifically, the ECB adopted a symmetric 2% inflation target over the medium term as one of the cornerstones of its new monetary policy strategy,” highlighted Governor Holzmann, who represents the OeNB in the Governing Council of the ECB. The ECB working group on productivity installed for the strategy review was co-chaired by the OeNB. The ECB’s new strategy now also recognizes the implications that climate change has for price stability.

The global challenge of climate change
Climate change, the ensuing global warming and higher incidence of extreme weather events as well as the transition to a more sustainable economy impact price stability by feeding through to macroeconomic indicators such as prices, output, interest rates, financial stability and monetary transmission. Hence, the Eurosystem is going to step up its climate-related monetary policy assessments and adjust the design of its macroeconomic models, reporting frameworks and monetary policy operational framework accordingly. “Together with our partner central banks in the Eurosystem, we are committed to advancing joint measures that address the global challenge of climate change. In 2021, the OeNB hosted a high-level international conference on climate change with one of the leading experts on climate change, Lord Nicholas Stern,“ recalled Governor Holzmann.

Executive Director Thomas Steiner added that “the OeNB’s risk management decisions have been informed by a range of sustainability criteria for years. In 2021, we also overhauled our strategic asset allocation to respond to financial market developments.”

OeNB posts operating profit of EUR 94 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 in 2020 and which continued in 2021,” OeNB Executive Director Thomas Steiner explained when presenting details on the OeNB’s balance sheet and profit and loss account.

At EUR 275 billion, total assets reached another historic high, up by as much as roughly EUR  46  billion or 20% from 2020 levels. Again, the rise in assets was above all attributable to targeted longer-term refinancing operations (TLTROs III) and the monetary policy asset purchase programs. Monetary policy operations accounted for as much as 71% of total assets at the end of 2021, totaling EUR 195 billion. On the liability side, current account balances of credit institutions subject to minimum reserve requirements went up significantly, reaching EUR 112  billion (2020: EUR 101 billion).

AT EUR 90 million, net interest income declined strongly, namely by as much as EUR 284  million, in 2021 (2020: EUR 374 million). Interest expense for outstanding targeted longer-term refinancing operations, above all TLTROs III, increased sharply to EUR  798 million (2020: EUR  370 million). This compares with interest income resulting from the current account balances of credit institutions required to hold minimum reserves, given negative remuneration of excess liquidity holdings, and interest income from the deposit facility of EUR  500  million (2020: EUR 217 million).

The net result of financial operations, write-downs and risk provisions totaled –EUR 47 million, which is a significant improvement (2020: –EUR 337 million). Thanks to our new asset allocation strategy, we were able to achieve high realized gains from financial operations. Last but not least, write-downs on foreign currency assets dropped visibly to EUR 42 million (2020: EUR 297 million). Ultimately, the OeNB allocated EUR 220 million to strengthen the risk provision.

“In sum, the OeNB’s 2021 operating profit rose to EUR 94 million, driven by additional positive factors, above all the high net profit resulting from the reallocation of monetary income within the Eurosystem,” explained Executive Director Steiner. “This improvement also drove up the central government’s 90% share of profit, which amounted to EUR 57 million. Beyond that, the OeNB paid EUR 24 million in corporate income tax to the government in 2021.”

Cash remains the most popular means of payment in Austria
Despite the pandemic conditions, the OeNB kept the Austrian economy and the general public steadily supplied with cash in 2021. “Austria was and is a cash country,” stated OeNB Executive Director Eduard Schock. While noncash payment transactions rose visibly in the past two pandemic years, as was to be expected, cash remains the uncontested payment instrument of choice in Austria. And while a majority of the people in Austria hold payment cards, more than 90% would not want to do entirely without cash. After all, cash is counterfeit proof, works in emergencies and during blackouts, and it is anonymous and inclusive like no other means of payment. In short: people in Austria prefer to pay cash for very good reasons,” Executive Director Schock summed up.

In addition to fulfilling our core tasks as a central bank, we accept our corporate social responsibility by supporting research and business development and by promoting the arts and culture in Austria. In 2021, we replaced our previous core funding scheme for Austrian economic research institutions by a new system with enhanced transparency.

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 outstanding commitment in the year under review.