38th meeting of Austria’s Financial Market Stability Board

In its 38th meeting on October 2, 2023, the Financial Market Stability Board (FMSB) evaluated the other systemically important institutions (O-SII) buffer and the countercyclical capital buffer (CCyB) and discussed recent developments in residential real estate financing.

Other systemically important institutions buffer

The other systemically important institutions (O-SII) buffer reduces the likelihood of a potential malfunction or failure of a systemically important institution and the associated costs for the financial system, the real economy and public budgets.

In its annual evaluation of systemically important institutions, the FMSB recommended to the Financial Market Authority (FMA) that it add Steiermärkische Bank und Sparkassen AG to the list of institutions identified as O-SIIs. The classification of all previously identified institutions and their buffer rates have remained unchanged. This makes it possible to continue the gradual increase of the combined size of the systemic risk buffer (SyRB) and the O-SII buffer in accordance with Recommendation FMSB/5/2022. Initially, this increase had been temporarily capped at +0.5 percentage points due to uncertainties.

For details and bank-specific information, see Recommendation FMSB/4/2023.

Countercyclical capital buffer

The FMSB advises the FMA to maintain the CCyB at its current rate of 0% of risk-weighted assets. The gap between the credit-to-GDP ratio and its trend, i.e. the credit-to-GDP gap, dropped further, namely to –13 percentage points in the first quarter of 2023. This indicator therefore remains well below the critical threshold of 2 percentage points. Against the backdrop of ongoing uncertainties and the challenges posed by higher interest rates, it is essential to pursue a conservative approach to risk provisioning and to ensure capital levels that are adequate by European standards.

Residential real estate financing

In the vast majority of European countries, including Austria, new residential real estate lending has declined significantly due to the interest rate increases that started in mid-2022. The associated decline in demand for residential real estate is having an impact on real estate prices and construction activity. The overvaluation of real estate has started to come down in Austria.

New residential real estate lending in Austria is characterized by a share of variable-rate loans that remains high and has even rebounded despite the fact that fixed rates are currently lower than variable rates. Data for the first half of 2023 confirm that lending standards have improved since the introduction of borrower-based measures. Even though some credit institutions used more than 100% of their exemption buckets under the regulation for sustainable lending standards for residential real estate financing (KIM-V), more than half of them used less than 50%.

Against the background of the changed macroeconomic environment, the FMSB also discussed how systemic risk from residential real estate financing has evolved since the KIM-V regulation was introduced. Systemic risk remains elevated. Even though it has been mitigated by the decline in new lending, this effect is more than offset by other factors, such as the drop in real estate prices, higher interest rates and lower income growth.

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.