Financial Stability Report 46

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• Financial Stability Report 46 (PDF, 3.6 MB) November 2023

Studies and Analyses

• Recent developments and macroprudential policy update (PDF, 953 kB) en Nov 23, 2023, 12:00:00 AM

• Nontechnical summaries in English and German (PDF, 186 kB) de en Nov 23, 2023, 12:00:00 AM

• The effects of cost-push inflation on Austrian banks (PDF, 1 MB) Wipf. To better understand what the current inflationary surge means for financial stability, this study analyzes how cost-push inflation resulting from import price shocks affected key Austrian macroeconomic variables during the current high inflation period (Q2 21 to Q1 23). Broadly in line with the expectable effects of a negative supply shock, the import price shocks are estimated to have caused an 8% rise in Austrian consumer prices, a 1% drop in Austrian GDP and a 180 basis point increase in interest rates following central bank reactions to higher inflation. The effects on Austrian banks’ income statements are more nuanced. On the one hand, the inflationary shocks drove up costs (staff costs and administrative expenses) and banks’ risk provisions; on the other hand, they also caused banks’ income to rise (net interest income and income from fees and commissions). Net interest margins, for instance, are estimated to be 25 basis points (14 basis points) higher for small (large) banks in the period from 2021 to 2023 due to cost-push inflation. The net effects on bank profitability turn out to be heterogenous. For small banks, cost push-inflation drove up costs and risk provisions more than income, causing the return on assets (ROA) to be 35 basis points lower in the period from 2021 to 2023. For large banks, the shocks led to smaller increases in costs and risk provisioning, resulting in a ROA that was 13 basis points higher in the same period. en cost-push inflation, import prices, banks, Austria E31, E44, G21, Q43 Nov 23, 2023, 12:00:00 AM

• Repricing of bank assets and liabilities in the current rate hike cycle: historical perspective and impact on bank profitability (PDF, 915 kB) Breyer, Girsch, Hanzl, Hübler, Steininger, Wittig. After several years of low or even negative interest rates, rates have been rising since mid- 2022. While banks in Austria had been unable to pass negative interest rates on to retail deposits because they were legally required to keep these rates above 0%, the Austrian banking sector benefited from the current rate hike cycle, with banks reporting high profitability levels. Deposit margins have increased since mid-2022, as have various credit spreads (i.e. the difference between lending and deposit rates). Furthermore, banks’ high profitability is also driven by historically low credit risk costs.
  The average overnight deposit rate in Austria (0.69% in July 2023) is higher than the euro area average of 0.27%. For loans, and in particular for consumer loans, however, both the interest rate level and pass-through rate are also higher in Austria. This is attributable, inter alia, to the combined effect of a higher share of variable rate loans and an inverted yield curve. In sum, Austrian banks’ credit spreads increased faster in the current rate hike cycle than those of banks in other euro area countries.
  We find low cumulative betas (i.e. the pass-through of a reference rate to the deposit rate) for overnight deposits (16% for households in the current rate hike cycle) and higher betas for new term deposits (up to 88% for nonfinancial corporations and 65% for households). A main reason for the historically low betas observed in the current cycle is the excess liquidity in the market. Finally, we find that interest rates are passed on to deposits more slowly in times of increasing interest rates than in times of declining interest rates.
  After the onset of the global financial crisis and during the low interest rate environment prevailing until mid-2022, euro area banks’ cost of equity was consistently higher than their return on equity. Bank profitability increased in the current rate hike cycle, and in light of macroeconomic uncertainties and potentially rising credit risk costs, banks should use profits to further strengthen their capital position. en Austrian banks, profitability, interest rates, deposit margins, interest margins, deposit betas G21, G28, E43, E58 Nov 23, 2023, 12:00:00 AM

• Austria’s deposit guarantee scheme – resilient in uncertain times (PDF, 648 kB) Eidenberger, Steiner. Austria’s deposit guarantee scheme (DGS) is multilayered, consisting of three separate schemes. Between 2020 and 2022, Austria’s DGS faced four payout events. Although its setup is rather complex and the payout events occurred in periods of exceptional macroeconomic uncertainty, Austria’s DGS has proved resilient, and depositors have remained confident. We identify three key aspects that helped maintain the credibility of Austria’s DGS: (1) a well-functioning setup and funding structure, (2) the efficient operational management of the payouts and (3) the superiority of the DGS in the creditor hierarchy and sound insolvency procedures. en deposit guarantee scheme, payout event, financial stability, systemic risk G21, G28, H12 Nov 23, 2023, 12:00:00 AM

• What do people in Austria think about green finance? (PDF, 924 kB) Breitenfellner, Kariem. This paper analyzes the results of a representative survey of Austrian households (OeNB Barometer) on green, i.e. sustainable, finance. This fast-growing market segment is receiving increasing attention from financial regulators and supervisors. A majority of respondents expect climate change to bring about a continuous deterioration in their financial situation over the next 15 years. At the same time, the answers to the questions specific to green finance suggest that respondents have mainly positive opinions and attitudes about sustainable financial products and businesses. We find this attitude to be more widespread among women as well as people with higher levels of education, middle incomes and higher saving rates. By contrast, age, job status, the size of the city or town where people live and financial literacy appear to play a rather minor role. The impact of these demographic and socioeconomic variables has, for the most part, been confirmed by regression analysis. Looking at actual demand, we find that there is low interest in green financial products, which is consistent with comparable Austrian and international studies. Some answers can be interpreted as evidence that at least a relatively small part of respondents is prepared to do a certain amount of research and even accept lower returns on sustainable investments. That said, contradictory answers suggest that some respondents struggle to understand green finance and related concepts. We also see skepticism about the credibility of financial products marketed as sustainable. Given that greenwashing can undermine the trust of (potential) customers and may consequently jeopardize confidence in the financial sector and financial stability, it is something that should be addressed by financial supervisors. de household survey, green finance, sustainable financial markets, ESG, climate change G41, Q5 Nov 23, 2023, 12:00:00 AM

• Key financial indicators (PDF, 285 kB) en Nov 23, 2023, 12:00:00 AM

• Key financial indicators (XLSX, 25 kB) de