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Home›Serbian loans›Austrian banks strengthen ambitions of Vienna financial hub

Austrian banks strengthen ambitions of Vienna financial hub

By Corey Owens
September 1, 2021
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Vienna’s reputation as a financial hub for Central and Eastern Europe may have been tarnished by the financial crises of the past decade, but the city and its banks are coming out of the struggles of the Covid pandemic in a brighter light. positive.

Austrian lenders have strengthened their balance sheets and downsized in recent times, in order to create leaner but more sustainable banking networks across the region.

“[Central and eastern Europe] now represents [just below] 25% of the total assets of the Austrian banking system, up from around a third before the global financial crisis ”, underlines Anna Lozmann, senior analyst for Switzerland, Austria and Central and Eastern Europe at the rating agency S&P Global .

Part of the reason for this change is the withdrawal of banks from the region’s riskiest economies. Raiffeisen Bank International left Slovenia in 2016 and Erste Group withdrew from Ukraine in 2013. In addition, they adopted more conservative lending standards.

New strategy: Prudent lending and exiting high-risk economies helped lenders like Raiffeisen © Stefan Fuertbauer for the FT

The central and eastern European subsidiaries of Austrian banks are also less dependent on parent groups or international financial markets to finance their growth today. “The big difference with the pre-crisis period [before 2008] is that recent growth has been funded by the region’s national deposits, which means it has been more sustainable, ”says Frankfurt-based Lozmann.

This more mature regional financing leaves Austrian banks well positioned to seize growth opportunities at a time when economic activity in Central and Eastern Europe is rebounding. In 2021, the World Bank forecasts that the aggregate gross domestic product of Central Europe increase by 4.6%, while the Western Balkans and Eastern Europe are expected to grow by 4.4% and 1.9% respectively.

Given the close commercial ties between Vienna and Central and Eastern Europe, the outlook for Raiffeisen Bank International and Erste Group, which represent the lion’s share of the Austrian banking system’s total assets in the region, looks favorable. Both institutions have a strong exposure to investment and retail banks in the markets in which they are present.

Large international banking groups, which have no particular focus on [central and eastern Europe], leave the region

Nurturing customer relationships that offer long-term opportunities, rather than short-term gains, is now a priority.

“Long-lasting banking relationships generally reflect economic activity and the ties between Austria and Central and Eastern Europe are very strong. Austrian banks to a large extent follow their corporate clients in the region, ”explains Lozmann.

Beyond an expected upturn in economic activity over the next two years, other business trends should also help Viennese bankers.

The first is the departure of international banking groups from Central and Eastern Europe. In February, ING has announced its intention to withdraw of the Czech Republic’s retail banking market by the end of the year. Two months later, Citigroup announced its intention to shut down its consumer banking operations in Poland and Russia as part of a broader strategy to exit markets where it lacks competitive scale and instead focus on asset management and institutional activities in Asia.

Crédit Agricole, meanwhile, reached an agreement in August to sell its Serbian banking unit to Raiffeisen Bank International for an undisclosed amount, subject to regulatory approval.

“Large international banking groups, which have no particular focus on [central and eastern Europe], are leaving the region, ”says Hannes Cizek, Group Strategy Manager at Raiffeisen Bank International. “As a result, a number of small and mid-sized banking markets are experiencing consolidation and we want to participate organically, but also inorganically. “

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Low levels of non-performing loans in Central and Eastern Europe – the proportion remained stable to 3.5% by the end of 2020, according to the European Bank for Reconstruction and Development – should help Austrian lenders reduce risk provisions and free up funds to seize opportunities when international banks crumble. go away.

Meanwhile, in the aftermath of the pandemic, Central and Eastern Europe is one of the main beneficiaries of the EU’s effort to bring production closer to its country and secure key value chains. This trend, in particular, could stimulate lenders with a pan-European reach.

“[Central and eastern Europe] benefits from the repatriation of certain production and manufacturing processes from abroad, thanks to its competitive labor costs and a changing political landscape in Asia, ”explains Cizek.

Vienna’s role in the region is enhanced by the city’s attractive quality of life, a strong legal system and the ecosystem of professional services firms

Nevertheless, great challenges remain on the horizon for Vienna’s ambitions as a financial hub, as well as for the banks themselves.

The main reason is the rise of competing regional financial centers, including Warsaw and Moscow. Both cities have strong banking markets and dynamic fintech clusters that are growing rapidly. Russian lenders are also making headway in the region, exacerbating competitive pressures in central and eastern European banking markets.

The region’s maturing economic profile, including a shrinking working-age population, could also weigh on Austrian bank returns in Central and Eastern Europe as long-term growth rates begin to slow. These pressures, and others, are likely to increase over time.

Yet Vienna’s role in the region remains enhanced by the city’s attractive quality of life, a strong legal system, and a network of professional service companies that have grown around the financial sector over the past decades.

City attractions: view of the Hofburg Palace from the main street of Kohlmarkt
City attractions: view of the Hofburg Palace from the main street of Kohlmarkt © Stefan Fuertbauer for the FT

“Vienna’s largest banking and insurance groups form a kind of nucleus around which service providers began to develop some twenty years ago,” notes Thomas Url, senior economist at the Austrian Institute of economic research. “This provides a network effect for the financial services industry that is necessary to maintain a financial center. ”

This pool of professional talent could help the city become a leading center for financial technology and sustainable finance – for example, by building on its position as a meeting point between capital, people and ideas from the fringes. Western and Eastern Europe.

“Vienna certainly acts as a bridge between Eastern and Western Europe,” says Cizek.

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