Banking System

Banking in Austria is regulated by the Bankwesengesetz (the Banking Act) of January 1994. This is updated regularly, in particular to comply with EU law and international commitments, such as those on money-laundering. The basic terms and conditions on which banks and finance houses can operate are common to all EU countries, including the right for banks registered in one EU country to set up in another EU country without re-registering under the so-called single passport system. They remain subject to home-country control.
The banking system is supervised by an independent Financial Markets Authority (FMA), which is the regulator for all financial institutions, including financial conglomerates. The Nationalbank is responsible for the stability of the financial system. The Nationalbank is 50% owned by the state; the remaining shares are split among trade unions and employers’ groups, as well as other banks and companies. The role of the Austrian Central Bank (Österreichische Nationalbank) has been substantially changed upon the implementation of stage three of the Economic and Monetary Union, which led to the Central Bank’s integration into the European Central Bank System (“ESCB”). The Central Bank now has a dual role: as member of the ESCB to implement the monetary policy decisions made by the European Central Bank as Austria’s Central Bank.
The FMA distinguishes between various types of domestic bank: joint stock banks; savings banks; state mortgage banks; Raiffeisen co-operative banks; Volksbanken mutual banks; housing construction mortgage banks and building societies; employee severance pay investment funds; investment fund management companies; and special purpose banks operating subject to restrictions on some types of activity. There were 897 banks in total at end-2003, including 21 branches of EU banks. Three-quarters of all banks were co-operatives; only 47 were joint stock banks. Total banking assets were €608.1bn; return on equity was 7.2%. The expense-to-turnover ratio was 68.9% and the staff costs ratio was 51.7%; spreads were 1.44%. Austria has a high banking density compared with other EU countries, and the FMA considers that it needs to do more to become competitive despite improvements in its performance in 2003.
Historically, political affiliation has played a role in the allocation of jobs in banking (as well as industry and the public service), but this is no longer as true as it was. Reasons include the emergence of new political parties, mergers between domestic banks with different political affiliations, takeover of domestic banks by foreign banks with no domestic political ties, growing difficulties in reconciling shareholder value and corporate governance with cronyism.
The distinctions between the different types of bank have become blurred in recent years, particularly between the joint stock, savings and co-operative banks. Austria’s leading banks are Bank Austria Creditanstalt (BACA), Bawag P.S.K, Erste Bank/Sparkassen, the Raiffeisen Bank group and the Volksbank group. None of the leading banks is a pure commercial bank. Bawag P.S.K is the result of the takeover by Bawag, which has its roots in the trade union movement, of the Post Office savings bank. Erste Bank/Sparkassen and BACA are hybrids between a listed bank and a savings bank, though officially classified for the time being as the latter, and the Raiffeisen banks are co-operatives.
BACA, which is a subsidiary of Germany’s second-largest bank, the HVB bank, claims to be the largest Austrian bank, with a market share of 25%, though the RZB group makes the same claim and die Erste Bank/Sparkassen also maintains that is has around 25% of the market. Thus between them they have around three-quarters of the Austrian banking market. Bawag P.S.K. is the fourth-largest bank, with around 10% of the market. All four – along with the Volksbank group (which has 6% of the domestic market) – have invested heavily in the Central and/or Eastern European and Balkan markets. Retail customers in these areas have a natural affinity with savings/co-operatives/mutual banks and Austrian banks have a geographic advantage. Erste Bank/Sparkassen owns the leading retail banks in the Czech and Slovak republics and has acquired control of the Hungarian Post Office bank. BACA has a 5-10% market share in a number of Central and Eastern European, and Balkan countries. RZB group, a joint subsidiary of the Raiffeisen co-operatives, which provides central back-office services and banking and investment services for large players, has also been expanding its stakes in Central and Eastern European banking.
The number of foreign credit institutions operating in Austria, apart from those that have bought into leading Austrian banks, is small, and their overall business activities are relatively limited. A number occupy niches such as consumer credit, particularly car finance, online banking, leasing or custody.
The large Austrian commercial banks have high credit ratings. They are fully integrated in the international transfer of funds and the international capital markets and have correspondent banks worldwide. In Central and Eastern Europe in particular, Austrian banks play a leading role and are thus in a position to provide optimal specialist services for and in these countries. The largest Austrian commercial banks are listed below:
- Bank Austria Creditanstalt AG;
- Erst Bank Sparkassen AG;
- Raiffeisen Zentralbank Osterreich AG;
- Österreichische Volksbanken AG;