Financial Stability Report 39

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• Financial Stability Report 39 (PDF, 3.4 MB) July 2020

Studies and Analyses

• Call for applications: Klaus Liebscher Economic Research Scholarship (PDF, 51 kB) en Jul 14, 2020, 12:00:00 AM

• Management summary (PDF, 93 kB) In reaction to the COVID-19 pandemic, we have shortened the reports section of this edition of the Financial Stability Report and included a first assessment of the impact of the crisis on financial stability (from page 39). The reports section focuses on developments in 2019 and early 2020 (depending on data availability), with May 12, 2020, as the cutoff date for data.
  The cutoff date for the special report on the impact of the COVID-19 crisis was June 2, 2020. More recent news and updates on the COVID-19 crisis are continuously being published on our website (https://www.oenb.at/Publikationen/corona.html). en Jul 14, 2020, 12:00:00 AM

• International macroeconomic environment: COVID-19 pandemic sparks severe global downturn (PDF, 242 kB) en Jul 14, 2020, 12:00:00 AM

• Corporate and household sectors in Austria: mounting vulnerabilities in the wake of the crisis (PDF, 309 kB) en Jul 14, 2020, 12:00:00 AM

• Austrian financial intermediaries: banks’ profits remained high, but low interest rates challenged the life insurance sector in 2019 (PDF, 695 kB) en Jul 14, 2020, 12:00:00 AM

• The impact of the COVID-19 crisis on financial stability in Austria – a first assessment (PDF, 942 kB) en Jul 14, 2020, 12:00:00 AM

• Nontechnical summaries in English (PDF, 66 kB) en Jul 14, 2020, 12:00:00 AM

• Nontechnical summaries in German (PDF, 77 kB) en Jul 14, 2020, 12:00:00 AM

• Mapping financial vulnerability in CESEE: understanding risk-bearing capacities of households is key in times of crisis (PDF, 689 kB) Albacete, Fessler, Propst. A crisis of the real economy – like the current crisis caused by the coronavirus pandemic – and the countermeasures taken by countries worldwide can lead to a severe financial crisis if debtors turn out to be unable to pay back their debt. The support debtors need and the costs involved in providing it directly depends on the financial buffer households have and their general risk-bearing capacity. It is crucial to understand both aspects to be able to anticipate potential problems and prepare for mitigating their impact. Policies designed to mitigate the effects of income losses could benefit greatly from better knowledge of the exact nature of the nonlinearities involved. We analyze newly available microdata on households’ balance sheets to examine financial vulnerability in Central, Eastern and Southeastern European (CESEE) countries and Austria. As Austrian banks have a high and increasing exposure in the region, households’ risk-bearing capacities in CESEE are an important factor in determining credit
  risks of the banking sector in Austria. The Household Finance and Consumption Survey (HFCS) allows us to study the general indebtedness of households as well as borrower-level vulnerability in eight CESEE countries and compare them to Austria. While the share of households owning their homes is comparably large in these countries, the share of households holding mortgage debt is not particularly large. Uncollateralized debt levels, by contrast, vary greatly across the region, and some of the countries show rather high levels of loan-to-value ratios, which point to more generous credit standards in mortgage lending. The debt service-to-income ratio >40% vulnerability measure points toward households in Croatia, Lithuania, Slovenia and Hungary being particularly vulnerable. Subtracting the assets of vulnerable households from their debt reveals that the levels of potential losses for banks are generally low. The highest loss given default estimates are obtained for Slovenia, Hungary and Lithuania. Furthermore, we use a machine learning approach to reweight the data, thereby decomposing the observed
  differences between CESEE and Austria into one part that can be explained by observable household characteristics and a remainder, which might be linked to banks’ different treatment of similar clients in different countries. The different directions of the effects of the reweighting approach across countries indicate that there is no typical household structure that suggests a high level of vulnerability as different types of households are vulnerable across countries. One important lesson from this crisis is to make sure that better data are available to policymakers
  (e.g. registers covering the loans of households to the necessary degree) so that research does not have to rely on survey data alone to analyze households’ risk-bearing capacities and, hence, we are better prepared for the next crisis. en household-specific property prices, mortgages, banking sector, Austria C81, D31, E21, E31, G21, O52, R31 Jul 14, 2020, 12:00:00 AM

• Austrian banks’ lending risk appetite in times of expansive monetary policy and tightening capital regulation (PDF, 824 kB) Kerbl, Steiner. In the past decade, the Austrian credit market was shaped by expansive monetary policy, favorable economic conditions and tightening regulatory capital requirements. Analyzing the impact of these three factors on Austrian banks’ credit risk, we focus on credit risk of new nonfinancial corporate borrowers and banks’ willingness to fund customers with a high risk of default. To this end, we examine borrower-by-borrower data available in the Austrian credit register. Using data from 2008 to 2019, we find evidence for a strong improvement in credit quality as estimated by banks. We relate this overall credit quality improvement to the favorable economic environment as corporate financial statements did not improve in tandem. Applying fixed effects panel regressions, we find that expansive monetary policy induces risk taking. Banks subject to tightening capital requirements reduced the probability of default and expected loss of their customers more strongly. Smaller, regional deposit-financed banks,
  which are to a greater extent affected by decreasing interest rates due to margin pressure, show stronger signs of risk taking.
  COVID-19 update: Austrian banks’ credit quality will severely worsen as a result of the ongoing coronavirus pandemic and the related economic shutdown. Past crises showed that economies and financial stability are hit the more, the higher the levels of private sector debt and the worse the credit quality are. In our analysis, we find that the credit quality of banks’ loan portfolios was good according to their own estimates when banks entered the coronavirus crisis. Low estimates of credit risk, however, also imply lower risk-weighted assets and thus
  lower capital requirements for a given loan portfolio. In annex 2, we depict the development of credit quality until year-end 2019 in selected service industries which were immediately hit by the policy measures taken in Austria to contain the pandemic. The overall trend, evident in recent years, toward improved credit quality according to banks’ estimates holds for all those – albeit heterogenous – industries, even though credit risk parameters are worse than for the cross-industry average, especially for accommodation, food and beverage service activities. en bank lending, credit quality, low interest environment, capital requirements, financial stability G21, G32 Jul 14, 2020, 12:00:00 AM

• Annex of tables (PDF, 209 kB) en Jul 14, 2020, 12:00:00 AM