20th meeting of the Financial Market Stability Board
At its 20th meeting on June 17, 2019, the Financial Market Stability Board (FMSB) looked back on its first five years in operation, provided an assessment of current risks in real estate financing and affirmed its recommendation of leaving the countercyclical capital buffer (CCyB) at 0% also in the fourth quarter of 2019.
Five successful years of working for financial stability
In the first five years of its existence, the FMSB has demonstrated its readiness and ability to take appropriate measures for addressing systemic risks in the Austrian financial market. Since convening for the first time in September 2014 and up to its 20th meeting in June 2019, the FMSB submitted recommendations to the Financial Market Authority (FMA) that concerned the buffer for other systemically important institutions (O-SII buffer), the systemic risk buffer and the countercyclical capital buffer. In addition, it published 20 press releases, five annual reports, the macroprudential policy strategy for Austria and a communication to the Federal Minister of Finance about the broadening of the macroprudential toolbox. These measures have also substantially contributed to international investors taking a much more positive view of the Austrian financial market. In May 2018, for instance, Standard & Poor’s assigned its second-highest rating to the Austrian banking system, putting it among the world’s most stable banking sectors. As a result, the financial system and, consequently, companies and households have benefited from low funding costs. Lending growth has been brisk, but not excessive, although capital ratios have increased considerably over the past five years.
FMSB sees slight increase in risks in housing finance
The FMSB has identified a slight increase in the risks in housing loans taken out by households as real estate prices have continued rising, interest rates have remained low and competition regarding lending conditions and margins has been tight. Moreover, borrowers’ debt service-to-income ratios have worsened for new housing loans over the past few years. At the same time, the ratio of loan amounts to the value of the underlying property (loan-to-value ratio) as well as maturities have improved. Additional risk-mitigating factors are stable household debt and stable housing loan growth that is not considered excessive. In its 21st meeting in September, the FMSB is going to review the effectiveness of its guidance on sustainable lending standards issued in September 2018.
FMSB steps up monitoring of loans taken out by real estate companies
In principle, systemic risks associated with real estate can also emerge in borrowing by real estate companies. Therefore, the FMSB has stepped up the monitoring of corporate loans in this sector. It has found that in 2018, more than half of the growth of loans to nonfinancial corporations in Austria was attributable to lending to real estate companies. In fact, Austrian banks show a slightly higher share of loans to real estate companies in their balance sheets than the average of EU banks. However, in terms of real estate lending to companies and households taken together, Austria is below the EU average. Also, the ratio of defaults has remained low in this loan segment. The FMSB will continue its monitoring activities in this area.
FMSB affirms its recommendation of keeping the countercyclical capital buffer rate at 0%
While the growth of loans to Austrian borrowers has picked up recently, it is still not excessive. Based on the relevant indicators, the FMSB has decided to recommend to the FMA that the countercyclical capital buffer be kept at 0% of risk-weighted assets from October 1, 2019 (Recommendation FMSG/2/2019).
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.