Recommendation (FMSB/7/2024): guidance on applying the countercyclical capital buffer

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 second quarter of 2024, nominal GDP growth in Austria was 1.9% year on year, with negative growth of –1.9% in real terms. The gap between the credit-to-GDP ratio and its trend, i.e. the credit-to-GDP gap, stagnated at –15.0 percentage points in the second quarter of 2024. This means this indicator 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.

In the second quarter of 2024, the average risk weights of corporate loans, which include a high share of commercial real estate loans, remained at an all-time low. Furthermore, there are more insolvencies now than prior to the COVID-19 pandemic. The large number of insolvencies has started to negatively affect credit quality. What is more, the corporate sector’s debt ratio is close to historical highs. The OeNB fundamentals indicator for residential property prices and the price-to-rent ratio have continued to decrease and are no longer at critical levels.

Capital levels that are adequate by European standards and prudent risk provisioning are conducive to counteracting the potential materialization of cyclical risks.

To improve the analysis of cyclical risks, a new methodology for identifying them will be implemented in the course of 2025. This new approach is intended to equally take into account banks, households and businesses, macroeconomic developments, financial markets and the credit-to-GDP gap with regard to the development of cyclical risks. The new indicators resulting from applying this new methodology are both analytically justified and derived from the prevailing literature.