Recommendation FMSB/6/2025: guidance on applying the sectoral systemic risk buffer

The Financial Market Stability Board (FMSB) advises the Financial Market Authority (FMA) to raise the sectoral systemic risk buffer for commercial real estate financing to 3.5% of these exposures at the consolidated and unconsolidated level. The FMSB makes this recommendation on the basis of Article 23e Austrian Banking Act and no. 2 of the Annex to Article 23e. Commercial real estate financing here refers to domestic risk exposures to the following ÖNACE 2025 sectors: F 41 Construction of buildings, F 43 Specialised construction activities and M 68 Real estate activities. In particular, the FMSB advises the FMA to raise the buffer rate in two steps, first to 2% as of July 1, 2026, and then, one year later, to 3.5%. Financing granted to limited- or non-profit developers will continue to be exempt because there is still no systemic risk associated with such credit.

OeNB analyses show that systemic risks from commercial real estate financing have risen further since the buffer was first implemented in 2024, due to the deterioration in the macroeconomic environment. Such systemic risks may materialize when real estate prices drop sharply during an economic downturn, potentially causing banks exposed to the sector to incur additional losses. These potential losses would be higher than the expected losses covered by banks’ loan loss provisions and the unexpected losses for which banks must hold regulatory capital (Pillar 1 requirements) and capital add-ons (imposed in the supervisory review and evaluation process under Pillar 2). Also, other macroprudential capital buffers would not cover the identified systemic risks arising from commercial real estate financing. The FMSB therefore considers it necessary to keep in place the requirement to hold a sectoral systemic risk buffer.

The buffer was confirmed to be the instrument appropriate to address the risk of additional losses that may occur in an adverse economic scenario. The buffer helps cover exposures as identified by systemic risk analyses and, as a result, helps strengthen banks’ resilience in this segment. The FMSB considers a rate of 3.5% to be an effective cover for such potential additional losses, taking into account existing loan loss provisions and regulatory capital requirements.

The OeNB expects the impact of the buffer on credit costs, lending activity and the real economy to be small: Almost all banks will still have sufficient excess capital even after the increase in the buffer rate. Also, banks may use their continued high profits for building up additional capital. If needed, demand for commercial real estate financing can be substituted within the banking sector.. Experience in both Austria and internationally has confirmed that higher buffer rates do not significantly restrict lending. Hence, the FMSB considers a sectoral systemic risk buffer of 3.5% to be appropriate.