Financial Stability Report 14

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• Financial Stability Report 14 (PDF, 1.9 MB) December 2007.

Studies and Analyses

• Austria’s Financial System Continues to Perform Well in a Difficult Environment (PDF, 53 kB) Financial Stability Report 14_x000D_
  en Dec 15, 2007, 12:00:00 AM

• Global Growth Continues until Mid-2007, but Downside Risks Increase (PDF, 463 kB) Financial Stability Report 14 en Dec 15, 2007, 12:00:00 AM

• Financing Conditions Have Tightened for the Real Economy Sectors (PDF, 205 kB) Financial Stability Report 14 en Dec 15, 2007, 12:00:00 AM

• Austrian Financial Intermediaries Develop Dynamically Despite Turbulent Environment (PDF, 431 kB) Financial Stability Report 14 en Dec 15, 2007, 12:00:00 AM

• Determinants of Bank Interest Margins in Central and Eastern Europe (PDF, 301 kB) Liebeg, Schwaiger. Schwaiger, Liebeg – Financial Stability Report 14_x000D_ Banks’ interest margins are among the most important indicators of the cost of financial intermediation. This paper investigates the determinants of banks’ interest margins in Central and Eastern Europe (CEE). Given the run-up to EU entry and EU membership itself, dynamics in the banking sector in CEE have developed rather differently than in other emerging market economies. We document that, in contrast to the literature, foreign ownership has a positive effect on interest margins, whereas state ownership proves to be irrelevant. Banks’ pricing of loans and deposits, however, is risk-adjusted in CEE – we detect positive risk premia for both interest and credit risk. However, our data provide some evidence for moral hazard behavior. Moreover, the decreasing interest margins in the region during the first half of the current decade seem to be caused by a decrease in operating costs as well as an increase of efficiency levels and rapid financial deepening. en Interest margins, local banks, relationship banking. G21, E40, C33 Dec 15, 2007, 12:00:00 AM

• Banking in Belarus – On a Trajectory of its Own? (PDF, 220 kB) Barisitz. Barisitz – Financial Stability Report 14 This study analyzes the functions and development of the Belarusian banking system in recent years, with a special focus on the current situation, which is characterized by a sharp deterioration of the country’s terms of trade in early 2007. Since the mid-1990s, the “Belarusian economic model” has consisted of a mixture of market elements with rigorous state interventionism and outright remnants of the centrally planned economy. About three-quarters of the country’s economy and four-fifths of its banking sector remain state owned. Thanks to a surprisingly favorable industrial legacy and to very advantageous terms of trade including outside subsidies in recent years, the “model” has delivered impressive growth and has slashed poverty. Credit institutions – particularly the largest ones – serve as instruments to carry out directed lending to finance fixed investment projects in various areas targeted by the state. From time to time, the authorities step in and bail out the most troubled players. The only major foreign acquisition in the sector to date was the purchase of Priorbank (the fourth-largest credit institution) by Raiffeisen Zentralbank Österreich AG (of Austria) in 2002. Most recently (since 2004) Belarusian banks appear to have joined, to some degree, the credit boom reigning in all of the country’s neighbors. The external shock of early 2007 (Russia’s sharp increase of energy prices) threatens to erode the quality of credits and to put pressure on the Belarusian ruble, thereby undermining the stability of the sector. The authorities have so far reacted by soliciting external financial assistance and by trying to attract FDI by selling some key enterprises – including some medium-sized banks – to foreigners, mostly Russians. en banking, Belarus, credit boom, FDI, financial crisis, hybrid economy, state interventionism, terms-of-trade shock, transition G21, P34 Dec 15, 2007, 12:00:00 AM

• Indicators for Analyzing the Risk Exposure of Enterprises and Households (PDF, 167 kB) Beer, Waschiczek. Beer, Waschiczek – Financial Stability Report 14 This paper describes indicators that were developed to analyze the exposure of enterprises and households to financial risks. In this context, we distinguish three types of risk: interest rate risk, price risk and exchange rate risk. Our indicators measure risk exposure by the share of financial instruments exposed to these risks in the assets and liabilities of enterprises and households. Specific conceptual and technical problems arise when recording indirect investment via financial intermediaries. Statistics compiled by the Oesterreichische Nationalbank (OeNB) are used as the primary data basis. Although the indicators lack informative value at the micro level, they facilitate an analysis of corporate and household risk performance at the sectoral level. en Risk analysis, nonfinancial corporations, households, exposure indicators, financial stability E44, G30 Dec 15, 2007, 12:00:00 AM

• Quantitative Validation of Rating Models for Low Default Portfolios through Benchmarking (PDF, 224 kB) Pföstl, Ricke. Ricke, Pföstl – Financial Stability Report 14_x000D_ The new capital adequacy framework (Basel II) is one of the most fiercely debated topics the financial sector has seen in the recent past. Following a consultation process that lasted several years, the regulations formally took effect on January 1, 2007. The advanced approaches (the advanced internal ratings-based, or A-IRB, approach and the advanced measurement approach, or AMA) are scheduled to become operational on January 1, 2008. The new framework allows banks to use the IRB approach for the calculation of the assessment base for credit risk. Use of the IRB approach is subject to regulatory approval, which can only be obtained if the internal rating systems meet certain requirements. One of these requirements is that the models employed must have good predictive power. Banks must review this predictive power once a year by performing a qualitative and quantitative validation of the models. The statistical methods used to perform quantitative validation require a significant amount of default data to derive valid statements about the model, but such data are typically scarce in the case of rating models for so-called low default portfolios (LDPs), i.e. portfolios for which banks have little default history. In this paper, we first deal with the general problems of LDPs under the IRB approach and cover the problems of validating rating models for LDPs. We then present an alternative method for the quantitative validation of such models, based on the idea of benchmarking. Finally, we provide an example of the application of the proposed validation method. en rating models, validation, benchmarking, low default portfolios G20, C19 Dec 15, 2007, 12:00:00 AM

• Annex of Tables (PDF, 219 kB) Financial Stability Report 14 en Dec 15, 2007, 12:00:00 AM