Recommendation FMSB/1/2024: guidance on applying the countercyclical capital buffer (CCyB)

40th meeting, March 12, 2024

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 the third quarter of 2023, year-on-year GDP growth equaled 7.9% in nominal and –0.2% in real terms. The gap between the credit-to-GDP ratio and its trend, i.e. the credit-to-GDP gap, stagnated at –15.4 percentage points in the third quarter of 2023. This indicator therefore remains well below the critical threshold of 2 percentage points.

In its analysis, the FMSB also takes into account other indicators because there may be risks from the credit cycle even if the credit-to-GDP gap is negative.

Current average risk weights of corporate loans, which include a high share of commercial real estate loans, are at a historically very low level. In addition, insolvencies are well above pre-pandemic levels. The OeNB fundamentals indicator for residential property prices and the price-to-rent ratio have been decreasing but remain at elevated levels by historical standards. Capital levels that are adequate by European standards and prudent risk provisioning are necessary to help mitigate the impact of cyclical risks. The FMSB therefore calls on banks to engage in prudent risk provisioning for potential loan defaults, irrespective of whether the CCyB has been activated or not. Retaining profits is an effective means to become more resilient, particularly in times of high interest income, and should be used accordingly.