43rd meeting of Austria’s Financial Market Stability Board

The 43rd meeting of Austria’s Financial Market Stability Board (FMSB) took place on December 2, 2024. Systemic risks from debt-based financing of residential real estate were at the top of the agenda. Furthermore, the FMSB reaffirmed its recommendation for keeping the countercyclical capital buffer at 0% and adopted its work program for 2025.

KIM-V effectively reduced systemic risks from residential real estate financing

Since the regulation for sustainable lending standards for residential real estate financing (KIM-V) entered into force, lending standards, like debt service-to-income and loan-to-collateral ratios, have improved considerably. The OeNB’s 48th Financial Stability Report found that, due to the sustainable lending standards associated with the KIM-V, the nonperforming loan (NLP) ratio for residential real estate loans has developed more favorably than it would have without this binding regulation. Together with the increased capitalization of the banking system, this was instrumental in achieving a situation in which no systemic risks from residential real estate financing with serious negative consequences for financial stability can be determined. If this is the case, the law provides for the regulation to expire.

However, the FMSB expressly points out that significant risks for the financial system still exist – particularly if decreasing capital ratios coincide with a potential return to unsustainable lending standards and a decoupling of developments in real estate prices and incomes. Therefore, the FMSB expects banks to continue to comply with the lending standards established by the KIM-V. It has also requested that the OeNB and the FMA review appropriate instruments for securing these lending standards. Such instruments include guidelines and capital-based measures.

Irrespective of this, for a timely overview, data collection intervals should be shortened from semiannual to quarterly intervals, as is already the case for large parts of supervisory reporting. Furthermore, aggregated results should be published on a regular basis.

The FMSB notes that many countries in the European Economic Area do not only employ borrower-based measures as a response to manifest systemic risks but implement them as a structural component of real estate lending. The European Central Bank (ECB), the European Systemic Risk Board (ESRB) and the International Monetary Fund (IMF) also view borrower-based measures as structural measures – sustainable lending standards are an important cornerstone of stable financial markets at any point in time.

Countercyclical capital buffer

The FMSB recommends leaving the countercyclical capital buffer (CCyB) unchanged at a rate of 0% of risk-weighted assets. The credit-to-GDP gap in Austria remained negative in the second quarter of 2024.

In 2024, based on OeNB analyses, the FMSB started to further develop its methodology for identifying cyclical risks. It plans to implement its new methodology in the course of 2025.

Work program for 2025

The FMSB will continue to focus on systemic risks from residential and commercial real estate financing also in 2025. Regarding the latter, the FMSB will evaluate the size of the sectoral systemic risk buffer once the first reporting data following the amendments to the EU Capital Requirements Regulation (CRR III¹) will become available. In addition to switching to a new methodological basis for calculating the countercyclical capital buffer, the FMSB’s agenda for 2025 also comprises the annual reviews of the other systemically important institutions buffer (O-SII buffer) and of systemic risks from the use of leverage in alternative investment funds (AIFs).

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.
 

¹ Amended version of Regulation (EU) 575/2013.