Recommendation FMSB/2/2023: guidance on applying the countercyclical capital buffer (CCyB)

36th meeting, April 25, 2023

The latest recommendation of Austria’s Financial Market Stability Board (FMSB) to the Financial Market Authority (FMA), in line with Article 23a para. 1 Austrian Banking Act, is to leave the countercyclical capital buffer (CCyB) unchanged at a rate of 0% of risk-weighted assets. In light of the remaining uncertainties, the FMSB advises banks to exercise restraint with regard to dividend payouts and share buybacks in 2023 and to ensure adequate risk provisioning to strengthen resilience.

The credit-to-GDP gap is currently below the critical threshold of 2 percentage points, having dropped to –9.9 percentage points in the fourth quarter of 2022 on the back of persistently high GDP growth.

The FMSB’s assessment is based equally on the credit-to-GDP gap and other indicators because risks may also arise from the credit cycle, even if the credit-to-GDP gap closes. In particular, the risk weights of mortgage-backed loans and corporate loans, of which a high share are commercial property lending, remain at historically low levels; and the risk weights of corporate loans have sunk even more recently. Furthermore, the fundamentals indicator for residential property prices and the price-to-rent ratio have risen to peak levels, despite some recent cooling-off. Particularly worthy of note is the fact that corporate loan growth of domestic banks has remained robust, though it is leveling off amid rising interest rates. Given the historically low default rates and the rising interest rates, the FMSB advises banks to step up risk provisions for potential loan defaults.

Annual nominal GDP growth, which had contracted sharply in 2020, rebounded by an unusually strong 10.2% in the period from the fourth quarter of 2021 to the fourth quarter of 2022. However, the outlook is fraught with heightened risks in the face of remaining uncertainties.