Director: “Subordinated” – National Bank with billions in losses again this year

It will take longer for the OeNB to recover from its balance sheet losses. After an operating profit of minus 2.21 billion euros in 2023, a minus is also expected this year – “certainly in the billions range,” Steiner said on Friday. It will be many years before the federal government receives benefits again.

Predictions beyond 2024 are difficult. However, because the balance sheet still contains large amounts of securities from the ECB’s purchase programs, which now have to be wound down, it will probably take longer for the balance sheet situation at the National Bank to stabilize again.

Profit distribution probably not until the 2030s
As soon as profits are made again, they are initially used to cover past losses, Steiner continues. A profit distribution to the Republic is therefore only likely again in the 1930s. The federal government was already empty-handed in 2022, when the OeNB was able to avoid a loss on its balance sheet by releasing provisions.

In 2023, the OeNB suffered a net loss of 2.06 billion euros. As in 2022, the reason for this was the ultra-loose monetary policy in the eurozone in recent years, followed by a rapid increase in interest rates due to the rise in inflation.

As a result of the ultra-loose monetary policy of the European Central Bank (ECB) for many years, the OeNB has many securities with quite low interest rates on its balance sheet. The interest income from this amounted to 494 million euros in 2023. On the liabilities side, however, the central bank has to pay higher interest rates to commercial banks for their deposits with the central bank as a result of the interest rate increase since 2022. Interest costs therefore amounted to minus 3.48 billion euros.

Governor calls for reserve requirements for banks
To temper this so-called ‘mismatch between assets and liabilities’, OeNB Governor Robert Holzmann once again spoke out in favor of increasing the minimum reserve requirements for banks. Banks must maintain a minimum reserve with the National Bank. This is currently one percent of a bank’s customer deposits, and the ECB has already lowered the interest rate to zero percent.

The rate could be increased to five to ten percent, Holzmann says. This would reduce the overall interest payments made by the monetary authorities to the banks. However, from the banks’ perspective, this is like a tax, says Holzmann.

The OeNB itself is only partially concerned about the negative result. “Whether a central bank makes a profit or a loss is a secondary consequence of its mandate,” Holzmann said. This would not affect the financial strength and ability to act. The OeNB’s negative balance sheet also has no impact on the local population, according to Steiner.

The institutions’ balance sheets are solid
The OeNB today remained confident in the stability of the domestic banking system. Despite the challenging environment due to the war in Ukraine, higher inflation and a phase of economic weakness, institutions’ balance sheets are solid. The rate of non-performing loans (NPLs) has increased slightly due to a higher number of bankruptcies, but this is not a cause for concern. Good sources of capital and liquidity will remain essential in the future, Deputy Governor Gottfried Haber said.

Regarding bank lending, the National Bank pointed out that the number of variable-rate loans in Austria again exceeded 50 percent at the end of 2023. Variable interest rate loans always pose a risk to the borrower. Since stricter lending rules were introduced in mid-2022, lending standards for home loans have improved significantly, Haber says.