VZCZCXYZ0008
PP RUEHWEB

DE RUEHVI #0839 1900845
ZNR UUUUU ZZH
P 090845Z JUL 09
FM AMEMBASSY VIENNA
TO RUEHC/SECSTATE WASHDC PRIORITY 2930
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
INFO RUCNMEM/EU MEMBER STATES

UNCLAS VIENNA 000839 
 
SIPDIS, SENSITIVE 
 
TREASURY FOR FTAT, OCC/SIEGEL, AND OASIA/ICB/MAIER 
TREASURY PASS TO FEDERAL RESERVE AND SEC/E. JACOBS 
 
E.O. 12958: N/A 
TAGS: EFIN AU
SUBJECT: Stress Tests Find Austrian Banks Safe, Current Measures 
Sufficient 
 
REF:  VIENNA 828 and previous 
 
Sensitive but Unclassified -- Protect accordingly. 
 
¶1. (SBU) SUMMARY:  According to Austria's National Bank (OeNB), 
major Austrian banks will not need large-scale recapitalization even 
if the recession deepens further in Austria and eastern Europe. 
This is the main finding of OeNB stress tests published on July 6. 
Bank Tier 1 capital ratios would fall, but remain above the 4.0% 
minimum legal requirement.  Existing support measures, including the 
EUR 15 billion state equity pot, should suffice.  The results are 
also significant, as Austria is among the first European countries 
to publish its financial sector stress results in any detail.  END 
SUMMARY. 
 
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STRESS TEST ASSUMPTIONS 
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¶2. (U) On July 6, the OeNB published the findings of its latest 
stress tests (tests which followed international best practices, 
according to the IMF's recent Article IV consultations).  The test 
assumes a drastic economic scenario:  a deeper-than-expected 
recession in Austria with GDP shrinking by -4.6% in 2009 and -2.7% 
in 2010, combined with an unexpectedly deep recession in CESEE/CIS 
of -4.3% in 2009 and -5.5% in 2010.  Such a severe (but plausible) 
recession would strain the Austrian banking system, particularly the 
six large banks with exposure in both Austria and CESEE/CIS. 
 
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RESULTS OF STRESS TESTS 
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¶3. (U) The Austrian banking sector, including large banks, would 
remain above the 4.0% minimum Tier I capital requirement.  It would 
cause a doubling (to almost 10%) of the non-performing loan (NPL) 
ratio of the domestic exposure to nonbanks, and a three-fold 
increase in the NPL ratio in CESEE to 20%.  Write-downs could reach 
EUR 30 billion in 2009-2010.  Operating income would also shrink. 
As a result, the average Tier 1 ratio (including EUR 8.4 billion 
equity from the GoA's bank rescue package and an additional EUR 0.7 
billion from third parties) of Austrian banks would drop from 8.9% 
to 6.1% in December 2010 (6.8% if banks use the full EUR 15 billion 
available in the GoA equity capital pool).  The average Tier 1 ratio 
of the six largest Austrian banks would drop from 8.5% now to 5.1% 
in 2010 (6.0% if they use all available GoA equity). 
 
¶4. (U) Though it cannot release individual statistics, the OeNB says 
that each major Austrian bank would have Tier 1 capital above the 4% 
regulatory minimum in the high-stress scenario.  (NOTE: it's unclear 
whether this includes German-owned Hypo Alpe Adria/HAA, whose 
troubles are longstanding - reftel).  Some smaller banks could fail 
to meet the minimum capital requirement, but the amount necessary to 
lift them above this threshold is less than .5% of the Austrian 
banking system's total capital and virtually all such endangered 
banks are embedded in the Raiffeisen, Volksbanken, or Sparkassen 
groups which have a tradition of mutual assistance, says the OeNB. 
 
- - - - - - 
CONCLUSIONS 
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¶5. (SBU) Austria's central bank concludes that the banking system is 
sufficiently capitalized and all major Austrian banks are in a 
position to withstand even a severe deterioration of the economic 
crisis.  OeNB Executive Director Andreas Ittner, responsible for 
financial markets and bank supervision, said publicly that banks do 
not need additional capital now and that the GoA's bank rescue 
package remains sufficient.  OeNB Governor Ewald Novotny said that 
even if banks find a future need for capital, there is sufficient 
money left in the state equity pot and banks may prefer to raise 
capital privately. 
 
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Updated CESEE Exposure Data 
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¶6. (SBU) According to new OeNB statistics, CESEE exposure of banks 
headquartered in Austria (mainly Raiffeisen International, Erste 
Bank, Volksbanken and BAWAG) fell in the first quarter about 5% from 
year-end 2009 to EUR 185 billion.  Including Austrian banks 
headquartered elsewhere (mainly Italian-owned Bank Austria and 
German-owned HAA, but also smaller banks like Turkish DenizBank), 
total CESEE exposure in Q1/2009 was EUR 287 billion, again down 
about 5%. 
 
HOH