36th meeting of Austria’s Financial Market Stability Board

In its 36th meeting on April 25, 2023, Austria’s Financial Market Stability Board (FMSB) focused on residential real estate financing and the countercyclical capital buffer (CCyB) and adopted its Annual Report for 2022.

The FMSB’s take on residential real estate financing

The turmoil in international banking markets in March 2023 showed how essential regulation and supervision is for the stability of banking markets. Besides Austrian banks’ efforts, the forward-looking macroprudential measures have contributed to the resilience of the Austrian banking market to the latest banking turmoil and to other challenges such as high inflation and rising interest rates.

In particular, borrower-based measures as well as macroprudential capital buffers have strengthened financial stability in Austria. The framework for borrower-based measures, as advised by the FMSB, was created with a regulation for sustainable lending standards for residential real estate financing (KIM-V) issued by the Austrian Financial Market Authority (FMA). This regulation, which has been in force since August 1, 2022, has improved lending standards considerably and helps to maintain a sound quality of residential real estate financing in the Austrian banking system, especially in times of rising interest rates and high inflation. A number of countries with unsustainable lending standards have experienced real estate booms that led to problems in the banking sector and to high welfare losses for those countries. Again based on the FMSB’s guidance, the FMA amended the regulation, easing the standards for bridge loans and small loans. The new standards and some other adjustments have been applicable since April 1, 2023. These changes have made the regulation even more flexible as it already is, given the, by international comparison, generous exemption buckets.

Countercyclical buffers

The FMSB advises the FMA to maintain the CCyB at its current rate of 0% of risk-weighted assets. The credit-to-GDP gap is currently below the critical threshold of 2 percentage points, having dropped to –10 percentage points in the fourth quarter of 2022 on the back of persistently high GDP growth. As the outlook is fraught with heightened risks, the FMSB renewed its recommendation for Austrian banks to exercise restraint with regard to dividend payouts and share buybacks in 2023 and to maintain a solid capital base.

Annual Report

In 2022, the work of the FMSB focused on developing and finetuning the borrower-based measures outlined above, reviewing the other systemically important institutions buffer (O-SII buffer), and identifying the adequate size of the CCyB at quarterly intervals. These measures were internationally very well received. In February 2023, they positively influenced Standard & Poor’s BICRA (Banking Industry Country Risk Assessment) scores for Austria. Standard & Poor's concluded that the Austrian banking sector continues to rank among the world’s most stable banking sectors. The FMSB submits its Annual Report to the Federal Minister of Finance and the Finance Committee of parliament, and subsequently publishes the report on its website.

Information on the FMSB

The FMSB, which became operational in 2014, works toward strengthening financial stability. Its members are representatives of the Austrian Federal Ministry of Finance, the Fiscal Advisory Council, the Financial Market Authority and the Oesterreichische Nationalbank. In particular, the FMSB may issue recommendations to the Financial Market Authority and provide risk warnings.