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Here’s how much Austrian banks are on the sovereign debt hook for

According to Austrian newspaper Der Standard, Austrian banks had 18.1 billion euros of exposure to foreign sovereign debt at the end of October. The debt to which the banks were most exposed was Polish, Italian, German and Hungarian sovereign debt.

This makes Austrian banks doubly exposed to Hungary and Poland as the banks also have significant private lending exposure in those countries as well. I see this as a major factor in worries about Austria’s sovereign credit.

The paper says Austrian banks have little exposure in Greece and Ireland. However, if you look at these exposures based on GDP weighting, the Austrian banks are very heavily exposed to Poland and Hungary and Greek exposure is also not small in my view given the near certainty of at least a 75% NPV loss on Greek sovereign bonds.

Some exact sums:

  • Poland: 2.837 billion euros
  • Hungary: 2.821 billion euros
  • Germany: 2.289 billion euros
  • Greece: 736 million euros
  • Spain: 450 million euros

The two largest Austrian banks are Erste Bank and Bank Austria, which is a subsidiary of Italy’s UniCredit. In total, the foreign liabilities of Austrian banks are 126% of GDP. See a list of the largest European banks from the initial 2010 stress tests here.

UPDATE: a separate article from Der Standard has just come out quoting the World Bank calling Austrian bank exposure to Eastern and Southern Europe a “besorgniserregende Entwicklung”, in English, a worrying development. That’s bureaucratic speak for so overexposed it will lead to insolvency in the event of a default.

“Österreichische Banken wurden von nationalen Regulatoren empfohlen, ihre zukünftige Kreditvergabe für regionale Tochtergesellschaften zu limitieren”.

That translates as Austrian banks have been advised by national regulators to limit future lending by regional subsidiaries. This lending limit will restrict growth in places like Bosnia-Herzegovnia and Romania where Austrian banks are active and that were mentioned by name in Der Standard’s account, making the austerity measures in Romania even more unpopular.

Source: Der Standard

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.

4 Comments

  1. Euro Blues says:

    Funny, the Austrian Press Agency (APA) and consequently the newspapers reported Monday that “There is no Need for Action” regarding the exposure of the Austrian banks in Eastern Europe, after an emergency meeting between the bank managers, the regulatory body and officials from the finance ministry.

    They press also ignored the main reason for the downgrade by Standard & Poor’s (loss of AAA for Austria) sector, (the likelihood of another bank bailout) and focused instead on the silly  “debt brake” (Schuldenbremse), the fiscal deficit and sovereign debt although the “political score” by S & P sounds pretty good to me:

    “The ratings on Austria continue to reflect our view of its stable governance and predictable economic policies, which remain hallmarks of Austrian politics. We view Austria’s economy as wealthy, diversified, and highly competitive. We expect the pace of fiscal consolidation will increase, which we believe could reduce fiscal deficits and debt faster than outlined in the government’s 2011 budget plan, and perhaps even in its budget for 2012. This is provided the eurozone environment does not deteriorate such that it hampers this goal. ”

    N.B. Austria has the lowest unemployment rate in Europe (does this not count anymore?)

    But S & P warned about further downgrades, if they “came to believe that

    1.    The weakening of Austrian banks’ balance sheets stemming from negative developments in major trading and outward direct investment partners meant that the Austrian government needed to recapitalize the banks.
    This could in turn lead to net general government debt rising above 80% of GDP, and could also further increase contingent liabilities

    2.Economic growth is much weaker than we currently expect”

    The media here (in Austria) is still very helpful in distracting from the fact, that the “Eurozone” is a neoliberal fantasy project and that the other big problem is bank debt, not government debt …
     

    • Anonymous says:

      I do think that Germany and Austria have one thing in common. Its banks exposures to non domestic problem loans. Both Germany and Austria have sensible sovereign debt levels, but their banks are another matter all together. Austria has potential losses in Eastern Europe. I do think that Austria’s banks will get into trouble at some point. Then the problems begins. If they avoid backstopping the banks then Austria will not become a problem, but I suspect that they will be pressured like Ireland to bail out any banks that fail. 

    • Oldrich says:

      Eurozone is a “neoliberal fantasy” ?! Definition of  neoliberalism is a kind of politics which emphasizes the role of economics/private sector over the Government/public sector.
      In practice the term is widely used a description of politics which gives a free reign to unrestrained, unchecked laissez-faire capitalism often associated with “predatory” aspects of ruthless capitalism.
      Actually it is nice to hear a lonely voice out there criticizing the EU for being a “neoliberal fantasy”. The majority of critique lashed against the EU is from the position that it is a socialist fantasy, social-engineering, bureaucratic, tying the market forces with countless rules and regulations, stifling the “competitive entrepreneurial spirit”…. 

      Actually if you failed to take notice the proponents of free-markets are attacking the EU and are pushing for more loosening of social and labour standarts to make the Eurozone more competitive. Apparently with countries like China….

      If there is one country whose citizens should be grateful for the existence of the Eurozone then it is the citizens of Austria. You guys should be in the street waving the EU flags and celebrating the 10th anniversary of the Euro currency and signing petitions for your government pleading with them to stay committed to the EU cause.

      Sum-up:
      1) No other GDP grew more between 2002 – 2010 more than in Austria thanks to he effects of the Euro
      2) The value of exported services grew to 60 % of Austrian GDP
      3) 55 % of exports went to other members of Eurozone
      4) 500.000 jobs were created
      5) Brings 12.600 jobs into the country annually
      6) Thanks to the subventions of the EU the regions and entrepreurs are more competitive
      7) Competing countries like the Italians cannot devalue and that’s why it is more difficult for them to compete with the Austrian products
      8) 14 x growth in the direct Austrian investment abroad than in 1995
      9) 8 x growth in foreign investment in Austria

      My friend I would search for a definition of 2 words in a dictionary : 1) humility, 2) gratitude and then I would think long and hard about them.

      http://www.austriantimes.at/news/Business/2012-01-11/38662/Austrian_Euro_boost_found_to_be_strongest

      http://derstandard.at/1325486023640/McKinsey-Studie-Oesterreich-profitiert-am-meisten-vom-Euro
      http://www.austria.com.ro/stiri/business/3208-austrian-euro-boost-found-to-be-strongest/