Transcript PRESENTATION - National Bank of the Republic of Macedonia

Lessons Learned and Measures
Aimed at Strengthening the
Resilience of the Banking Sector
The Austrian View
Michael Hysek
Managing Director of Banking Supervision
Financial Market Authority
BSCEE Conference
Macedonia, 15.-17. June 2010
Agenda
1. The Austrian Banking Sector
2. Austrian Exposure in CESEE and CIS
3. “Highlights” of the Crisis
4. The Way Forward
5. Conclusio
Michael Hysek, FMA
Macedonia, 15.-17. June 2010
2
(1) Austrian Banking: Facts & Figures
(as of 31 Dec 2009 in EUR)
yoy-change
Nom. GDP Austria
276.9 bn
-1.8 %
Aggregated Total Assets
1034.1 bn
-3.3 %
Expected Net Income
247.8 mio
-87.1 %
Risk provisions
8.3 bn
-19.5 %
Cost-Income Ratio
62.0 %
+6.5 pb
Solvency Ratio
18.7 %
+1.5 pb
67
-1
254.4 bn
-4.9 %
Number of Subsidiaries in CESEE
Aggregated Total Assets CESEE Subsidiaries
Michael Hysek, FMA
Macedonia, 15.-17. June 2010
3
(1) Diversity of Austrian Banks
(as of 31 Dec 2009)
Number of Credit Institutions:
Savings Banks
856
55
Raiffeisen Credit Cooperatives
545
Volksbank Credit Cooperatives
68
Joint Stock Banks and Private Banks
51
State Mortgage Banks
11
Building and Loan Associations
4
Special Purpose Banks
92
Member States Branches
30
Michael Hysek, FMA
Macedonia, 15.-17. June 2010
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(1) Austrian Top 10 Banking Groups
(consolidated)
As of 31 Dec 2009
Total Assets
in Billion Euro
Erste Group Bank AG
201.7
Unicredit Bank Austria AG
194.5
Raiffeisen Zentralbank Österreich AG
147.9
Österreichische Volksbanken AG
48.5
BAWAG P.S.K. Bank für Arbeit und Wirtschaft AG
41.2
Hypo Alpe-Adria Bank International AG
41.1
Raiffeisenlandesbank Oberösterreich AG
35.4
Österreichische Kontrollbank AG
34.3
Raiffeisen-Holding NÖ-Wien reg.Gen.m.b.H.
33.6
Oberbank AG
16.0
Michael Hysek, FMA
Macedonia, 15.-17. June 2010
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(2) Austrian Exposure in CESEE and CIS
(billions)
(as of 31 Dec 2009)
70.0
60.0
50.0
40.0
30.0
20.0
10.0
0.0
(Onbalance Obligo, Q4 2009, Source: BIS)
Michael Hysek, FMA
Macedonia, 15.-17. June 2010
in bn USD
in bn EUR
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(3) „Highlights“ of the Crisis
3.1 Austrian Bank Stabilisation Package
3.2 Crisis Activities of the FMA
3.3 Nationalisation of HGAA
3.4 “The Vienna Initiative”
Michael Hysek, FMA
Macedonia, 15.-17. June 2010
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(3.1) Austrian Bank Stabilisation Package
Strengthening the interbank market: provide liquidity to
the financial sector (Interbank Market Revival Act;
EUR 65 bn)
Strengthen equity capital of banks – “Recapitalisation
Package” (Financial Market Stability Act; EUR 15 bn)
Deposit insurance (EUR 10 bn): Securing deposits of
natural persons
Additional measures – Enhancing supervisory
efficiency, temporary restrictions on short selling
Michael Hysek, FMA
Macedonia, 15.-17. June 2010
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(3.2) Crisis Activities of the FMA
Permanent contacts with management of big banks
Close monitoring of key ratios
Regular liquidity reports
Involvement in the stabilisation package
Daily telephone conferences with the Central Bank
Ad hoc-surveys
Targeted on site-inspections
Supervisory Colleges / Ad hoc-Meetings
Information exchange with other supervisors
Michael Hysek, FMA
Macedonia, 15.-17. June 2010
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(3.3) Nationalisation of HGAA
10/11/2009: Ad hoc announcement: projected loss for 2009
significantly above € 1 billion
HGAA publicly expressed need for recapitalization until end of 2009
Nov/Dec 2009 Alert phase within liquidity management
04/12/2009: Downgrading by Moody‘s: BFSR from E+ to E;
Long Term from Baa1 to Baa2
14/12/2009: Agreement on takeover of Hypo Group Alpe-Adria
by the Austrian government (closing on 30/12/2009)
Commitment of Republic of Austria and BayernLB for further capital
injections to ensure compliance with minimum capital requirements
Michael Hysek, FMA
Macedonia, 15.-17. June 2010
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(3.3) Nationalisation of HGAA - Challenges
Influence of medial reporting on withdrawal of funds
Contagion effects in the case of insolvency
Guarantee by province of Carinthia appr. € 18 billion
Supervisory Communication (domestic and cross-border)
Taking the appropriate supervisory measures at the right time
Michael Hysek, FMA
Macedonia, 15.-17. June 2010
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(3.4) The Vienna Initiative
European Bank Coordination Initiative („Vienna Initiative“):
EBRD / IMF-coordinated agreement between the parent banks
of the largest local banks in the region
15 parent banks have made specific rollover and recapitalization
commitments in five countries (Bosnia, Hungary, Latvia,
Romania and Serbia)
Joint IFI Action plan (EUR 25 bn support in October 2009)
Next steps (“Vienna Plus”) to promote local currency lending
and funding in the region
Michael Hysek, FMA
Macedonia, 15.-17. June 2010
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(4) The Way Forward
4.1 A New Legal Framework
4.2 The New EU Supervisory Architecture
4.3 Cross-Border Cooperation
4.4 Dealing with Foreign Currency Lending
Michael Hysek, FMA
Macedonia, 15.-17. June 2010
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(4.1) A New Legal Framework
Better risk coverage
More stringent capital requirements
Constraint on procyclical effects
Limitation of leverage
Higher liquidity standards
Hightened supervisory attention towards systemic relevant
financial institutions (SIFIs)
 Strengthen resilience of financial sector
 Careful phase-in / grandfathering
Michael Hysek, FMA
Macedonia, 15.-17. June 2010
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(4.2) The New EU Supervisory Architecture
Macro-prudential supervision
European Systemic Risk Board (ESRB)
Effective risk warning system
Microprudential supervision
European System of Financial Supervisors (ESFS)
Establishment of sectoral EU-level authorities (ESAs: EBA, ESMA,
EIOPA)
Colleges of supervisors
Michael Hysek, FMA
Macedonia, 15.-17. June 2010
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(4.3) Cross-Border Cooperation
Supervisory Colleges
Continuous and reciprocal information flow (in normal times and times of
crisis)
Common understanding
- Joint decision on models
- Joint risk assessment / joint agreement on capital adequacy
- Measures to be taken
- Future examination programme
Joint on-site examinations
Strengthening of operational network
Michael Hysek, FMA
Macedonia, 15.-17. June 2010
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(4.4) Dealing with Foreign Currency Lending
Financial crisis: ancillary risks relating to foreign currency loans
(FCL) and loans with repayment vehicles (LRV) have become
immanent
Banks: refinancing risk, concentration risk, lawsuit risk,
reputation risk
Customers: exchange rate risk, interest rate risk, performance
risk arising from the repayment vehicle
Systemic risks: potential for adverse effects on financial market
stability
Michael Hysek, FMA
Macedonia, 15.-17. June 2010
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(4.4) Dealing with Foreign Currency Lending
Loans to private households in Euro Area, end 2009
Michael Hysek, FMA
Macedonia, 15.-17. June 2010
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(4.4) Dealing with Foreign Currency Lending
Foreign Currency Lending is both a domestic issue ...
Share of foreign currency lending
35%
100%
25%
20%
15%
10%
19
9
19 8/0
9 9
20 9/0
0 6
20 0/0
0 3
20 0/1
0 2
20 1/0
0 9
20 2/0
0 6
20 3/0
0 3
20 3/1
0 2
20 4/0
0 9
20 5/0
0 6
20 6/0
0 3
20 6/1
0 2
20 7/0
0 9
20 8/0
0 6
20 9/0
09 3
/1
2
5%
Nonfinancial Corporations
Private Households
Domestic Non-Banks
in %
4,5
90%
4,0
80%
3,5
70%
3,0
60%
2,5
50%
2,0
40%
1,5
30%
1,0
20%
0,5
10%
0,0
0%
-0,5
19
9
19 8/0
9 9
20 9/0
0 6
20 0/0
0 3
20 0/1
0 2
20 1/0
0 9
20 2/0
0 6
20 3/0
0 3
20 3/1
0 2
20 4/0
0 9
20 5/0
0 6
20 6/0
0 3
20 6/1
0 2
20 7/0
0 9
20 8/0
0 6
20 9/0
09 3
/1
2
30%
Michael Hysek, FMA
Currency composition**
CHF
** only CHF, USD and JPY used.
JPY
USD
Interest rate advantage JPY vis à vis CHF (right axis)
Macedonia, 15.-17. June 2010
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(4.4) Dealing with Foreign Currency Lending
... as well as a CESEE issue
Michael Hysek, FMA
Macedonia, 15.-17. June 2010
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(4.4) Measures taken on domestic market
Issuance of Minimum Standards (Oct 2003)
Ongoing information campaigns
Recommendation to stop FC-lending (Oct 2008)
Self-regulation under supervision (Jun 2009)
Extension of Minimum Standards (Mar 2010)
Examination of the compliance with the Minimum Standards
Michael Hysek, FMA
Macedonia, 15.-17. June 2010
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(4.4) The New Minimum Standards
Issuance:
22 March 2010
Scope:
No new FCL to private households
Exceptions:
Households with a natural hedge
Households with highest creditworthiness
Households with expected cash flow in FC
Other important items
Extended rules to inform borrowers about inherent risks of FC loans
Banks’ support of customers planning to convert their existing FC loans
Banks have to present a strategy to reduce funding risks
Michael Hysek, FMA
Macedonia, 15.-17. June 2010
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(4.4) Austria’s CESEE FCL Initiative
Target: Reduction of volume and share of unhedged FCLs in CESEE via new
business
Scope: Initiative is exclusively focused on the flow and not on the stock of FC
loans, yet banks should facilitate voluntary conversions.
Challenges:
Achieving a level playing field
 Coordination among home/host supervisors and IFIs
Lack of long-term refinancing facilities in the local currency
 EBRD: Working Group on local currency development
- Aim: joint public and private sector proposal on FC-lending and the
development of local currency markets
- Next Full Forum Meeting of the ‘Vienna’ Initiative in September
Michael Hysek, FMA
Macedonia, 15.-17. June 2010
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(4.4) The Need for Coordination
FC lending creates excessive risks
 threat for financial market stability
International awareness is bound to increase:
European Systemic Risk Board (ESRB)
IFIs such as the IMF or the EBRD
Sooner or later a number of supervisors/regulators will be faced
with the issue of FCL.
A timely coordination process can only improve our position!
Michael Hysek, FMA
Macedonia, 15.-17. June 2010
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(5) Conclusio
The appropriate supervisory response to the financial crisis has to
comprise a combination of several measures:
Strengthening international coordination and cooperation
Strengthening supervision as a complement to regulation
Focus on strong, independent governance and risk
management
Need for stronger shock absorbers – however, careful phasingin of new requirements as financial conditions improve
Macroprudential overlay to capture systemic risks
Michael Hysek, FMA
Macedonia, 15.-17. June 2010
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